DEFINITION of 'Gaming Industry ETF'

Gaming Industry ETFs are funds that invest in leisure companies for the purpose of generating returns equal to an underlying index. Standard gaming funds track companies that generate revenue from the casino gaming industry, video game sector or other forms of entertainment. Its success is tied to the health of the economy and consumer discretionary sector.

In periods of strong economic growth, consumers are more likely to spend on discretionary items like games or gambling, but when conditions worsen, consumption tends to pullback as well. 

BREAKING DOWN 'Gaming Industry ETF'

Gaming Industry ETFs often hold stocks in international and domestic gaming companies. For example, the VanEck Vectors Gaming ETF (BJK), a thematic fund of casino companies, consists of major US casinos such as Las Vegas Sands (LVS) and MGM Grand (MGM) as well as large international holdings like Galaxy Entertainment Group. Most casino companies generate a large portion of revenue from two major markets: Las Vegas and Macau. The two regions play an equal role in the outcome of the casino industry. 

Video games are another sector covered by gaming funds. It is the fastest-growing space in the entertainment industry, reaching a large audience than TV and movies combined. The rising popularity of eSports has translated to significant returns for stocks in the video gaming industry. This additional layer of future revenue also means continued growth for the foreseeable future. In early 2016, PureFunds launched one of the first video game themed fund based on the EE Fund Video Game Index. It consists of some well-known technology companies like Activision (ATVI) and NVidia (NVDA) in addition to companies incorporated overseas. Since inception, the ETF is up over 100% due to greater adoption of eSports, virtual reality, and new gaming systems. 

Gaming industry ETFs offer investors the same benefits as a traditional exchange-traded fund: lowest costs, greater transparency and flexibility, and tax efficiency. They are traded on most major exchanges during normal trading hours and support selling short or buying on margin.

Risks of Gaming Industry ETFs

The gaming industry has witnessed explosive growth in recent years, but all investments have risks. Targeting the video game or casino industries is a bet on the consumer discretionary sector. If consumers have more disposable income, they often spend it on recreation and leisure activities. In the event of a downturn, though, consumer discretionary spending loses favor to necessary items. The casino sector also must pay attention to conditions in Las Vegas and Macau, where companies in the sector generate a large share of sales.

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