Global X Video Games and Esports ETF Analysis

The Global X Video Games & Esports ETF [HERO] was a winner last year as demand soared during the coronavirus pandemic. The HERO ETF had gained 91% in 2020, which has attracted further investor interest.

The gaming fund opened 2021 at $31.38 on 4 January and rose 3.7% to $32.54 by close on 15 January. That is more than double the $13.98 low it fell to on 16 March last year, when coronavirus fears hit the markets.

The ETF’s year-to-date total daily return was 6.1% on 18 January, with total net assets of $577m. According to ETF Trends, the fund had gained more than $446m in new assets over the course of 2020.

In comparison, the VanEck Vectors Video Gaming & eSports ETF [ESPO] had $720m in total assets and a year-to-date total daily return of 4.7%, as of 18 January. Meanwhile, the Roundhill BITKRAFT Esports & Digital Entertainment ETF [NERD] had $73m net assets and a year-to-date return of 8.2% in the same period.

Next level gains

The Global X Video Games & Esports ETF, launched on 25 October 2019, invests in companies that are developing or publishing video games, facilitating the streaming and distribution of video gaming content, operating competitive esports leagues, as well as producing hardware used in video games and esports.

The fund had 40 holdings in early January, including in Singapore’s online game developer and publisher Sea [SE] with a 8.2% weighting, Chinese video platform firm Bilibili [BILI] at 6.9%, console giant Nintendo [7974] at 6.4%, US chipmaker Nvidia [NVDA] at 5.7%, and US gaming publisher Activision Blizzard [ATVI] at 5.3%.

Bilibili’s share price rocketed 432% from $23.03 on 15 January 2020 to $226.05 at the close of 15 January this year. The company’s revenues grew 74% year-over-year in the third quarter 2020.

Sea’s share price also jumped up 459.2%, growing from $40.42 on 15 January last year to $229.66 on 15 January 2021. Third-quarter 2020 revenue was $1.2bn, with its gaming business Garena being a major contributor.

Nintendo’s share price rose 57.8%, from JPY41,627.11 on 15 January 2020 to JPY65,690.00 on 15 January this year. Meanwhile, shares in Nvidia climbed 110% in the past 12 months to $514.38 15 January.

Gaming industry set to hit new high score

The ETF has benefited from the growing consumer demand for digital entertainment during the pandemic lockdowns. Instead of heading to the cinema, the pub or a sports match people have sought out entertainment within their own four walls.

This isn’t just teenagers in their bedrooms. According to Statista, first-generation gamers that are now grown up and have significant spending power at its disposal are boosting the market.

The global gaming market is expected to hit more than $200bn by the end of 2023, according to Statista. Esports have also boomed, with gamers and fans increasingly desperate for social interaction and the thrill of live sport.

Another plus for the HERO is its global diversification. It rallied on the surge in Chinese and Asian consumer spending, which allowed it to bounce back from the pandemic.

“Video game player count continued to increase in 2020 with the health crisis forcing people to stay at home,” Sweta Jaiswal wrote for Zacks. “Moreover, the boom in the video gaming space may remain post-pandemic as the outbreak has changed the lifestyle and preferences of Americans to a large extent.”

An Insider Intelligence report forecasts that total eSports viewership is expected to grow at a 9% compound annual growth rate between 2019 and 2023, powered by mobile, particularly in China.

According to Market Screener, analysts are bullish on all of the stocks in the fund, with Bilibili and Activision Blizzard both having a consensus buy rating. Meanwhile, Sea, Nintendo and Nvidia all have a consensus outperform rating.

Stephen McBride, editor of RiskHedge Report, believes Nvidia is a “slam dunk” investment not just for its chips powering digital entertainment, but also for its robocar and medical devices, he wrote in Forbes.

There could be challenges ahead. An end to the pandemic could lead gamers to embrace the great outdoors, for instance. But, overall investors can be assured that the long-term gaming trend is set to keep powering on.