Taking a Look Under the Hood of VanEck’s Video Gaming and Esports ETFJohn Patrick Lee, CFA, Product ManagerSeptember 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.
Currently, the MVIS® Global Video Gaming and eSports Index is heavily tilted towards video game publishers (including the publicly traded companies that operate the largest esports leagues) and semiconductor companies. Learn more about ESPO and the high growth potential of the global video gaming and esports industry.
 Source: Zynga.
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.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the companies mentioned herein. Fund holdings will vary. For a complete list of holdings in the ETF, please click here https://www.vaneck.com/etf/equity/espo/holdings/.
Indices are unmanaged and are not securities in which an investment can be made. Index returns do not reflect a deduction for fees & expenses. Certain indices may take into account withholding taxes.
MVIS Global Video Gaming and eSports Index is the exclusive property of MVIS® (a wholly owned subsidiary of Van Eck Associates Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MV Index Solutions GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. The VanEck Vectors Video Gaming and eSports ETF is not sponsored, endorsed, sold or promoted by MV Index Solutions GmbH and MV Index Solutions GmbH makes no representation regarding the advisability of investing in the Fund.
An investment in the VanEck Vectors® Video Gaming and eSports ETF (ESPO®) may be subject to risks which include, among others, investing in the video gaming and esports companies, equity securities, communication services and information technology sectors, medium-capitalization companies, issuer-specific changes, special risk considerations of investing in Asian, Japanese and emerging markets issuers, foreign securities, foreign currency, depositary receipts, , market, operational, cash transactions, index tracking, authorized participant concentration, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and concentration risks, all of which may adversely affect the Fund. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Medium-capitalization companies may be subject to elevated risks.
Fund shares are not individually redeemable and will be issued and redeemed at their Net Asset Value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called "creation units" and otherwise can be bought and sold only through exchange trading. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading fund shares in the secondary market. Past performance is no guarantee of future results. Returns for actual fund investments may differ from what is shown because of differences in timing, the amount invested, and fees and expenses.
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Authored byJohn Patrick Lee, CFA