Gaming in the form of video games, eSports, and online gambling has soared in popularity as users worldwide stay at home due to the COVID-19 pandemic. Investors seeking exposure to this trend can find several exchange-traded funds (ETFs) that hold baskets of gaming stocks. These gaming ETFs include funds that hold stocks for video games and eSports, as well as casino and gambling companies. These companies tend to fall into either the consumer discretionary or communications services sectors. As such, there is no single benchmark that fully captures the performance of the gaming industry. The consumer discretionary and communications services sectors have each outperformed the broader market in the past year. As of September 2, the Consumer Discretionary Select Sector SPDR ETF (XLY) has posted a 1-year trailing total return of 28.6% and the Communications Services Select Sector SPDR ETF (XLC) has a total return of 31.5% compared with 24.8% for the S&P 500.

Key Takeaways

  • The gaming industry, as represented by both the consumer discretionary and communications services sectors, has outperformed the broader market in the past year.
  • The ETFs with the best 1-year trailing total return are ESPO, NERD, and BJK.
  • The top holdings of these funds are NVIDIA Corp., DouYu International Holdings Ltd., and Flutter Entertainment PLC, respectively.

There are 5 ETFs focused on the gaming industry, excluding inverse and leveraged funds. The gaming landscape is changing rapidly as eSports is becoming more popular and as sports betting becomes more widely legal. As such, 2 of the 5 ETFs in this universe have been in existence for less than a year. The best gaming ETF, based on performance over the last year, is the VanEck Vectors Video Gaming and eSports ETF (ESPO). Below, we'll look at the top 3 gaming ETFs for Q4 2020 measured by 1-year trailing total returns. Aside from benchmark returns above, all data are as of September 6, 2020.

ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs which can negate some of your investment gains or increase your losses.

VanEck Vectors Video Gaming and eSports ETF (ESPO)

  • 1-Year Trailing Total Return: 74.9%
  • Expense Ratio: 0.55%
  • Annual Dividend Yield: 0.14%
  • 3-Month Average Daily Volume: 180,182
  • Assets Under Management: $471.9 million
  • Inception Date: October 16, 2018
  • Issuer: VanEck

ESPO is a large-cap growth fund focused on companies involved in gaming and eSports hardware, software, and development. The fund includes casinos and online betting companies as well. ESPO tracks the MVIS Global Video Gaming and eSports Index, a market cap-weighted index comprised of less than 30 companies that derive at least 50% of their revenue from gaming or eSports. About a third of ESPO's holdings are U.S.-listed stocks, with others representing markets including Japan, China, and South Korea. The top holdings for ESPO include NVIDIA Corp. (NVDA), the developer of graphics processing units and related hardware; Advanced Micro Devices Inc. (AMD), the semiconductor and computer processor company; and Tencent Holdings Ltd. (700), the Chinese internet service and product conglomerate.

Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD)

  • 1-Year Trailing Total Return: 61.3%
  • Expense Ratio: 0.25%
  • Annual Dividend Yield: 0.20%
  • 3-Month Average Daily Volume: 47,408
  • Assets Under Management: $44.7 million
  • Inception Date: June 4, 2019
  • Issuer: Roundhill Financial LLC

NERD is a multi-cap blended fund targeting gaming stocks in developed markets. The fund tracks the Roundhill BITKRAFT Esports Index. The index represents a modified equal-weighted portfolio of companies involved in various aspects of gaming and eSports, including game publishing, hardware development, streaming network operation, and competitive team ownership, among others. NERD currently holds a basket of 30 stocks. The fund's top holdings include DouYu International Holdings Ltd. (DOYU) and HUYA Inc. (HUYA), both Chinese gaming-focused livestreaming service providers; and Modern Times Group MTG AB, the Swedish digital sports and gaming entertainment holding company.

VanEck Vectors Gaming ETF (BJK)

  • 1-Year Trailing Total Return: 8.6%
  • Expense Ratio: 0.66%
  • Annual Dividend Yield: 3.20%
  • 3-Month Average Daily Volume: 31,186
  • Assets Under Management: $49.8 million
  • Inception Date: January 22, 2008
  • Issuer: VanEck

BJK is an excellent option for investors looking for exposure to a narrow segment of the entertainment industry that includes casinos and other gaming corporations. BJK tracks the S-Network Global Gaming Index, whose components are global corporations that generate a minimum of 50% of their revenue from gaming and similar activities. While most of BJK's holdings are casino operators, it also includes sports and race book operators along with technology providers. Thus, BJK holds a wider breadth of equities than other gaming portfolios. Among the top holdings for BJK are Flutter Entertainment PLC (PDYPY), the global sports betting and bookmaking company; Las Vegas Sands Corp. (LVS), the casino and resort company; and Galaxy Entertainment Group Ltd. (27), the Macau-based resort, hospitality, and gaming company.