3 Video Game ETFs for Q1 2022

ESPO, HERO, and NERF are three video game ETFs for Q1 2022

The video game industry is massive and growing quickly. According to the Entertainment Software Association, as of 2021 some 227 million Americans play video games. This number has grown during the COVID-19 pandemic as more people sharply boost their use of video games while sheltering at home. ESports, a relatively new class of spectator entertainment, has dramatically expanded this market because it involves all genres of video gaming. A multi-billion-dollar industry with hundreds of millions of fans globally, eSports also has helped spawn a professionalized gaming market. Investors seeking exposure to this trend can find several exchange-traded funds (ETFs) that hold baskets of gaming stocks. Some examples of video game companies include Electronic Arts Inc. (EA), Activision Blizzard Inc. (ATVI), and Take-Two Interactive Software Inc. (TTWO).

Gaming ETFs originally focused on casino and gambling companies, but they increasingly have broadened their scope to own stocks of companies involved in video games and eSports. While some ETFs hold shares of companies in both the video gaming and gambling industries, below we focus on funds dedicated specifically to companies in the video game industry.

Key Takeaways

  • The broader video game industry is largely represented by companies in the communication services and information technology sectors. All three video game ETFs below significantly underperformed the broader market.
  • The three video game ETFs that trade in the U.S. are ESPO, HERO, and NERF.
  • The top holdings of these funds are Tencent Holdings Ltd., NVIDIA Corp., and Activision Blizzard Inc., respectively.

The broader video game industry is largely represented by the communication services or information technology sectors. As such, no single benchmark fully captures the performance of the gaming industry. Instead, the broader S&P 500 is a useful comparison. As of Jan. 13, 2022, the S&P 500 had a 1-year trailing total return of 24.0%. All three video game ETFs below significantly underperformed the broader market.

There are only three ETFs focused on the gaming industry that trade in the United States. The best-performing video game ETF, based on performance over the past year, is the VanEck Video Gaming and eSports ETF (ESPO). We examine the three video game ETFs below. All numbers below are as of Jan. 15, 2022.

VanEck Video Gaming and eSports ETF (ESPO)

  • Performance Over One-Year: -11.7%
  • Expense Ratio: 0.55%
  • Annual Dividend Yield: 0.11%
  • Three-Month Average Daily Volume: 85,566
  • Assets Under Management: $559.0 million
  • Inception Date: Oct. 16, 2018
  • Issuer: VanEck

ESPO tracks the MVIS Global Video Gaming and eSports Index, an index of companies involved in video game development, eSports, and related hardware and software. The fund holds only companies that derive at least 50% of total revenues from video gaming and/or eSports offerings. Communication services companies make up about three-quarters of invested assets, with information technology names making up the bulk of the remainder. U.S.-listed companies represent over 40% of the portfolio, followed by those based in Japan and China.

The top three holdings of ESPO are Tencent Holdings Ltd. (700:HKG), a China-based internet services and technology company; NVIDIA Corp. (NVDA), a multinational technology company that designs graphics processing units (GPUs); and Advanced Micro Devices Inc. (AMD), a multinational semiconductor company.

Global X Video Games & Esports ETF (HERO)

  • Performance Over One-Year: -18.1%
  • Expense Ratio: 0.50%
  • Annual Dividend Yield: 0.74%
  • Three-Month Average Daily Volume: 165,460
  • Assets Under Management: $388.2 million
  • Inception Date: Oct. 25, 2019
  • Issuer: Mirae Asset Global Investments Co. Ltd.

HERO tracks the Solactive Video Games & Esports Index, designed to gauge the performance of companies operating within the global video games and eSports markets. The ETF is designed to provide exposure to companies that develop or publish video games, facilitate content streaming and distribution, own and operate within competitive eSports leagues, or produce hardware for video games and eSports. The fund’s holdings primarily operate within the communication and information technology sectors. HERO also offers broad geographical diversification, with the United States, Japan, and South Korea representing the three largest geographical categories.

HERO's top three holdings are NVIDIA Corp., described above; sponsored American depositary receipts (ADRs) of NetEase Inc. (NTES), a China-based internet and online services company; and Electronic Arts Inc., a video game publisher.

Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD)

  • Performance Over One-Year: -28.1%
  • Expense Ratio: 0.50%
  • Annual Dividend Yield: 1.10%
  • Three-Month Average Daily Volume: 17,566
  • Assets Under Management: $58.8 million
  • Inception Date: June 4, 2019
  • Issuer: Roundhill Investments

NERD tracks the Roundhill BITKRAFT Esports Index, which is designed to gauge the performance of globally-listed companies engaged in the eSports market, including video game publishers, streaming network operators, video game tournament and league operators/owners, competitive team owners, and hardware companies. The fund is comprised of companies across the market-cap spectrum, investing in a mix of both value and growth stocks. Companies based in the U.S., China, and Japan represent the top three positions in the portfolio.

The fund's top three holdings include Activision Blizzard Inc., a video game developer and holding company; class B shares of Modern Times Group MTG AB (MTG.B:OME), a Sweden-based holding company engaged in eSports and gaming entertainment; and sponsored ADRs of DouYu International Holdings Ltd. (DOYU), a China-based gaming-centric live streaming platform.

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