Video game enthusiasts looking to take their investments to the next level may soon be able to with Canada’s first global e-sports exchange-traded fund.
Evolve Funds Group Inc. filed a preliminary prospectus Thursday for the Evolve E-Gaming Index ETF.
Trading under the ticker HERO, the fund aims to track the Solactive Electronic Gaming Index – a basket of stocks involved in hardware, software and services connected to the e-sports industry.
With a management fee of 0.70 per cent, HERO will track 45 stocks in the Solactive index. Top holdings will include Nintendo Co. Ltd., Tencent Holdings Ltd., Electronic Arts Inc. and Activision Blizzard Inc., the developer of popular video games Overwatch and Call of Duty.
Evolve Funds’ chief executive officer Raj Lala – who also runs Evolve Marijuana Fund (SEED) – told The Globe and Mail he first began to look at the market after reading an article about e-sports events selling out football stadiums.
Evolve is known on the Street for its product shelf of thematic ETF products since entering the Canadian market in 2017. In addition to its cannabis-focused fund, it has ETFs centred on cybersecurity, gender diversity, innovative technology and electric cars.
The company’s entrance into the gaming industry comes at a time when mobile applications and virtual-reality headsets are changing the way gamers access content. The video game industry recently surpassed US$134.9-billion in sales, according to data provided by Newzoo – a global provider of games and e-sports analytics. Almost half of that revenue is now coming from mobile games – which include both smartphone and tablet games.
Over the past two years, video game ETFs have emerged in the United States under the tickers GAMR and ESPO. The funds have seen year-to-date performance of 10.8 per cent and 19.3 per cent, respectively. Yet, both funds have been slow to take off with investors, with combined assets of approximately US$112-million.
The lag in asset growth could be a marketing issue with financial advisers, said Eric Balchunas, an ETF analyst with Bloomberg.
“When you look at the numbers it is very perplexing," Mr. Balchunas said in an interview. “But the gaming industry doesn’t resonate with the older clientele; the phrase 'video games’ doesn’t mean the same thing as it does to the millennial market. Labels are important in the ETF world because it’s very marketing-oriented.”
Mr. Balchunas said the launch of ETFMG Funds’ GAMR and VanEck’s ESPO were similar to the launch of millennial thematic ETFs, where financial advisers appear to be more hesitant to present investments with certain labels to their baby boomer clients – despite the industry outperforming robotics and cybersecurity.
Another misconception is that thematic ETFs overlap with larger core funds. Comparing the holdings within GAMR with the S&P 500, there is only a 6.4-per-cent overlap, according to Bloomberg data.
“There are other themes where a lot of that theme is already embedded in big name stocks, but video games is not one of them,” Mr. Balchunas added.
Despite the sluggish U.S. market, Mr. Lala said the video game industry is only getting bigger, with some investors calling it the “new cannabis."
“It’s a massive business for the hardware manufacturers, the production companies, organizers of events,” he said. “There is a big enough universe around this industry to make a very successful ETF.”