Metaverse ETFs’ Boom and Bust

December 21, 2022

Investors and issuers are doubling down on metaverse exchange-traded funds, even as the ETFs are beaten down in the market and the virtual spaces are ridiculed by the public.  

Over 35 metaverse-related ETFs have launched globally since June 2021, according to Morningstar Direct data, a subscription portfolio product. That has outpaced the 32 internet-themed launches and 29 blockchain ETFs over the last two years. The launches aren’t limited to smaller firms: Earlier this month, BlackRock’s iShares unit announced the launch of the iShares Metaverse UCITS ETF (MTAV), which is listed on Euronext.  

The interest comes despite lackluster performance of companies invested in the metaverse. Shares of Microsoft Corp. and Nvidia Inc., two of the six firms that make up the Metaverse Standards Forum, have slumped 27% and 47% year to date, respectively.  

Meanwhile, shares of Facebook’s parent Meta Platforms Inc. have plummeted nearly 66% year to date, and 60% since it changed its name last October. Adding to the tech sector’s woes are headwinds like rising interest rates and supply shortages that have led to layoffs, revenue declines and soaring repatriation costs.  

But that hasn’t stopped firms’ investments—and losses—in the metaverse.  

Menlo Park, California-based Meta reported in October that its metaverse Reality Labs lost more than $3.6 billion in the third quarter this year, surpassing the $2.63 billion loss posted the year before.  

"It’s a level of investment we believe makes sense for a company committed to staying at the leading edge of one of the most competitive and innovative industries on earth,” Reality Labs Chief Technology Officer Andrew Bosworth wrote in a blog post on Monday. 

Despite the poor performance, ETF investors and issuers aren’t dismayed, choosing to stay the course toward potentially game-changing technology, analysts told ETF.com.  

“A lot of it comes back to what was the excitement in mid-2021 that took over the internet. It was all blockchain, cryptocurrency, NFTs and the metaverse,” said Bryan Masucci, director at ETFMG, noting the similar excitement that arose around earlier iterations of the internet, so-called Web1 and Web2 technology. 

Data More Valuable Than Oil 

“This transition to Web3, which a lot of people believe is going to be more of a gradual transition rather than abrupt change from Web1 to Web2, you have the opportunity to read, write and own data,” he added. “That's important because data is becoming more valuable than oil these days.” 

Of the metaverse ETFs launched globally, the five largest, including the Roundhill Ball Metaverse ETF (METV), the KODEX K-Metaverse Active ETF, the TIGER Fn Metaverse ETF, the Fubon Solactive Metaverse ETF and the Mirae Asset TIGER Global Metaverse Active ETF, have accumulated $966 million in assets since June 2021, Morningstar Direct data shows.  

The funds have largely posted negative returns, with METV dipping 51% year to date, according to ETF.com data. The STOXX Global Metaverse Index, which gives exposure to 65 companies involved in the digital marketplace, gaming, health care, manufacturing, software, hardware and components, has also tumbled nearly 35% this year.  

Still, experts point to the long-term appeal metaverse technology may have for investors.  

“The overarching story around the components that make up Metaverse still have a very long-term appeal when it comes to growth and innovation,” said Arun Singhal, global head of product management at Qontigo, in an interview with ETF.com.  

“I hope that folks are not looking at something like a thematic index as being a core strategic holding,” he added. “When we look at these offerings, we're capturing narrow baskets of stocks, putting them into an index to capture certain narrow exposures; in this case, a growth innovation story.” 

 

Contact Shubham Saharanat[email protected]          

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