As the exchange traded funds industry has matured, many new ETFs have taken on narrowly focused, niche concepts. The evolution has gone something like this: Sector funds, industry ETFs and then niche concept.
Over the past year, a fresh crop of new niche ETFs have come to market, including some recent introductions such as the PureFunds Video Game Tech ETF (NYSEArca: GAMR). Yes, you would be correct in assuming that the PureFunds Video Game Tech ETF is the first ETF dedicated to the video game industry.
GAMR “follows the EE Fund Video Game Tech Index (GMB), “which tracks thirty-six exchange-listed companies across the globe actively engaged in supporting or utilizing the video gaming industry,” according to a statement from PureFunds.
ETFs in GAMR’s ilk are bound to draw critics, but investors looking for tactical position may not want to be hasty in dismissing the video game ETF.
“Among the ETF’s holdings are 4.4 percent in San-Francisco-based Glu Mobile Inc., which develops and publishes mobile games on a global basis (including “Kim Kardashian Hollywood”), and 2.3 percent 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 percent weighting. GAMR has 5 times more exposure to all of these companies than any other ETF,” reports Eric Balchunas for Bloomberg.
The point is investors will not find many of GAMR’s holdings in traditional technology sector ETFs. As Bloomberg notes, there is scant overlap between the video game ETF and the Technology Select Sector SPDR (NYSEArca: XLK).
“Publishers of video games, makers of related accessories and peripherals as well as “large conglomerates whose business models actively support the video game, interactive training, or simulation segments” are eligible for inclusion in GAMR and its underlying index,” reports Benzinga.[related_stories]
The FANG stocks — Facebook (NasdaqGS: FB), Amazon (NasdaqGS: AMZN), Netflix (NasdaqGS: NFLX) and Google or Alphabet (NasdaqGS: GOOG) – among others, drove technology ETFs higher last year and then proceeded to weigh on the sector early this year. Not surprisingly, the FANG quartet has helped lead the recent tech rebound. Those stocks don’t mean much to GAMR and that could be a good thing or bad thing depending on how the market is treating richly valued tech and Internet names at a particular time.
GAMR’s index offers “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 percent is quadruple the average asset-weighted fee for an equity ETF,” adds Bloomberg.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.