Gaming Industry ETF

What Is a Gaming Industry ETF?

Gaming industry ETFs are exchange-traded funds that invest in casino and sports betting companies for the purpose of generating returns equal to an underlying index. Gaming funds track companies involved with casino and sports gambling, but can also include video games and similar forms of electronic entertainment.

Understanding a Gaming Industry ETF

ETFs are a basket of securities that can be actively managed or track an underlying index. They are similar to mutual funds, but listed on exchanges and trade throughout the day like stocks.

ETFs aim to replicate the returns of a broad market index such as the S&P 500 Index, or they can follow specific sectors such as healthcare, commodities or in this case gaming, by tracking a relevant industry index. Gaming ETFs invest solely in companies that generate revenue from gaming. This generally means sports and casino gambling, but can also mean video games and related entertainment.

The fortunes of gaming industry ETFs hinge largely on the health of the economy and consumer discretionary spending. When times are good, consumers can afford to splurge on entertainment such as casinos and sports betting. But when times are bad, they typically refrain from non-essential spending.

Examples of Gaming Industry ETFs

The VanEck Vectors Gaming ETF (BJK) is one of the largest gaming ETFs with roughly $74 million in assets under management as of December 2020. This thematic fund seeks to replicate the price and yield performance of the MVIS Global Gaming Index, which is composed of companies involved in casinos and casino hotels, sports betting, lotteries, gaming services, gaming technology, and gaming equipment.

As of December 2020, the VanEck Vectors Gaming ETF held shares in 41 companies. Its top holdings included Irish bookmaker Flutter Entertainment; fantasy sports and sports book operator DraftKings (DKNG); Galaxy Entertainment Group, a Hong Kong-listed owner of hotels and casinos in Macau; and Las Vegas Sands (LVS), a casino and resort company operating in Las Vegas and Macau. 

Gaming industry ETFs sometimes refer to video games and eSports. ETFMG, which describes itself as a provider of thematic ETFs, launched the Wedbush ETFMG Video Game Tech ETF (GAMR) in March 2016. This fund tracks the EEFund Video Game Tech Index, which is composed of companies involved with video game technology, game development, console and chip manufacturing, and game retailers.

As of September 2020, the fund held $121.7 million in assets under management. Top holdings included Corsair Gaming (CRSR), a maker of hardware peripherals such as headsets and computer mice; Unity Software (U), which makes video game and virtual reality rendering engines; and Zynga (ZNGA), a social and mobile game developer.

Benefits of a Gaming Industry ETF

Gaming industry ETFs generally offer investors the same benefits as broad market ETFs such as low expense ratios, decent liquidity, flexibility, and tax efficiency. They are traded on major national exchanges and can be sold short or bought on margin.

Investors who want exposure to the gaming sector might consider a gaming ETF rather than putting all their eggs in one basket. However, while ETFs are associated with lower risks and volatility compared with individual stocks, investors should still perform due diligence before buying.

Special Considerations

The goal and function of each ETF, together with the constituents of the benchmarks they track, should be scrutinized to verify they match an individual's investment goals. Costs should be calculated to ensure they don't eat into returns. Though ETFs are considered less expensive than mutual funds, some come with exorbitantly high fees.

Investors should also consider the state of the economy before throwing their support behind the gaming sector. The global lockdowns in 2020 to curtail the spread of the pandemic hit broad swathes of the economy, and casinos and resorts were no exception. In addition, consumers tend to cut back on discretionary spending when disposable income dwindles.

Finally, investors should pay careful attention to conditions and developments in Las Vegas and Macau, two cities where many listed casino companies generate a large portion of revenue. For example, Macau primarily relies on visitors from mainland China. In 2014, China changed its travel rules so that mainland Chinese visiting Macau could only stay for five days, down from seven previously. Share prices of Macau casino operators fell following the announcement.

For related reading, see Top Casino Stocks.