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Copies of Call of Duty Modern Warfare 3 video game published by Activision Blizzard are displayed in a shop in Rome, in this file photo.

Tony Gentile/Reuters

As soon as it came out, The PureFunds Video Game Tech ETF was understandably labelled a gimmick. But is it? In the ETF world, the line between fads and worthwhile products comes down to whether investors are being sold something they already have in their portfolio. If a "niche" ETF is made up of the same blue-chip stocks in your broad equity ETF, it might not make a lot of sense to double up.

Take First Trust ISE Cloud Computing Index Fund (SKYY) and the Barclays Women in Leadership ETN (WIL). Both hold many blue-chip companies, including Facebook Inc., Apple Inc. and Google Inc., that are already well represented in mainstream funds and ETFs. You don't get much targeted exposure that way.

The new video game ETF (GAMR), on the other hand, tracks large-, mid- and small-cap U.S. and international companies nowhere to be found in the big funds and widely held ETFs. Much of the universe that this ETF tracks, made up of game makers, console makers, peripheral developers, retailers and parts-makers, has almost no overlap with the S&P 500 Index. The ETF's holdings also have very little overlap with the largest tech ETF, the Technology Select Sector SPDR Fund (XLK).

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All in all, GAMR has a mere 5.5-per-cent overlap with XLK. Any thematic ETF with less than 20-per-cent overlap with its closest mainstream ETF is arguably a value-add. That's not to say investors need to rush out and buy GAMR. But it does offer something new and different for those bullish on the gaming industry.

Among the ETF's holdings are 4.4 per cent in San-Francisco-based Glu Mobile Inc., which develops and publishes mobile games on a global basis (including Kim Kardashian Hollywood), and 2.3 per cent in China-based Changyou.com Ltd., which develops multi-player online computer games. Konami Holdings Corp., a Japanese video game maker responsible for Dance Dance Revolution, gets a 5.5-per-cent weighting. GAMR has 5 times more exposure to all of these companies than any other ETF.

What many investors don't realize is how long it will take these stocks to get into mainstream tech or international indexes tracked by popular ETFs. Inching into big indexes takes years, and often inclusion comes only after they show the capacity to grow on their way to maturity. Even then, many of the companies get a miniscule weighting in the big indexes.

Those growth spurts, however, come with extra volatility, or more dramatic moves both up and down. Many thematic ETFs that track these momentum-type companies and industries have about double the volatility of the S&P 500 Index. GAMR is about 2.5 times more volatile than most large-cap indices. The index the ETF tracks is dynamic, meaning that it continually kicks out the weak links and adds more promising prospects. That's a good strategy for a growing industry like gaming. On the downside, however, GAMR is more expensive than ETFs that passively track an index - by a lot. GAMR's expense ratio of 0.75 per cent is quadruple the average asset-weighted fee for an equity ETF.

Lassoing up-and-coming industries not yet in reach of bigger ETFs has worked well for PureFunds before. It had a huge hit with the PureFunds CyberSecurity ETF (HACK). Cybersecurity and online gamers? One could argue there might be some overlap there.

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