Taking a Look Under the Hood of VanEck’s Video Gaming and Esports ETF
John Patrick Lee, CFA, Product Manager
September 12, 2019
VanEck Vectors® Video Gaming and eSports ETF (ESPO®) provides targeted access to the largest companies involved in developing and publishing video games, esports and related hardware. The resulting portfolio is global, with heavy representation from the U.S. and Asia. Some of the names in the portfolio are more well-known than others. Most investors are probably already somewhat familiar with Tencent, Nvidia and Nintendo. Here are a few other names that might be flying under the radar.
Asia-Pacific names represent around 54% of the portfolio weight, and have contributed the most to this year’s performance, year-to-date.
Sea Limited (4.6% average weight) is up 183% year-to-date.
Sea is headquartered in Singapore, and is a digital entertainment platform that develops and publishes online PC and mobile digital content for consumers in Southeast Asia and Taiwan.
The company operates through three primary business channels: digital entertainment, e-commerce and digital financial services. The majority of company revenues are generated in Taiwan, Thailand, Vietnam and Indonesia.
Bandai Namco (4.5% average weight) is up 34% year-to-date.
Bandai Namco is a Japanese company that develops, manufactures and sells products across a number of different segments, primarily video games and toys.
The company is the result of a merger between two companies – Bandai and Namco – that occurred in 2006.
Namco was the developer of the original Pac-Man series that was released in 1980, and the company continues to develop and sell games that are popular in Asia. Approximately 70% of company revenues are currently generated in Japan.
Square Enix (2.4% average weight) is up 48% year-to-date.
Square Enix is a Japanese company that develops and publishes video games popular around the world, and is known for the wildly successful video game Final Fantasy.
Square is a somewhat more diversified than other Asian video game companies, with 60% of revenues coming from Japan and solid representation from U.S. and Europe.
U.S. companies are roughly 37% of the portfolio weight, and have also contributed positively to this year’s performance.
Advanced Micro Devices (6.0% average weight) is up 70% year-to-date.
Advanced Micro Devices is a well-known U.S. semiconductor company that generates substantial revenues from Graphical Processing Units (GPUs) that facilitate the gameplay of video gaming on both PCs and consoles.
Advanced Micro Devices’ chips are used in Microsoft’s popular Xbox console; Advanced Micro Devices was also chosen by Google to create custom GPUs for Google’s cloud gaming platform Stadia.
Zynga (4.0% average weight) is up 45% year-to-date.
Zynga is a U.S. company responsible for some of the most popular mobile games on the market, including FarmVille and Words with Friends.
Zynga is focused heavily on social video game services that are tied directly to consumer’s social media accounts; Zynga’s popular poker game was the first game that Facebook introduced on its social networking platform.
In its most recent earnings report in August, Zynga stated it was on track to post its best yearly sales since 2012, raising its sales outlook for the full year to $1.24 billion.
Activision Blizzard (6.4% average weight) is up 9% for the year.
Activision is one of the most high-profile video game companies in the world. Activision develops and publishes a number of video games for PCs, consoles and mobile devices.
Beyond the big name games like Call of Duty and Overwatch, it’s important to note that Activision has heavily invested in the esports ecosystem by launching self-run leagues for its games.
In its most recent earnings report in August, Activision guided future earnings lower; the company has shifted its focus to online and mobile-based gaming and expects to see “initial results” from this shift later this year.
Investing in Esports and Video Gaming
Determining which game companies will produce the next big hit is difficult, and investors may wish to invest in a diversified basket of stocks. Such an approach may allow investors to express a view on the sector without having to analyze each specific stock. The index methodology which guides VanEck Vectors® Video Gaming and eSports ETF (ESPO®) provides exposure to companies in the video gaming and esports industries.
Source of all data: FactSet. Holdings and performance as of 8/31/19.
This material is for informational purposes only. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and are subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
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