The Global X Video Games & Esports ETF (NASDAQ: HERO) is up 69.49% year-to-date, easily making it one of 2020’s most impressive thematic funds from the perspective of pure performance, but there could be more upside available with this ETF.
HERO, which is nearly a year old, “seeks to invest in companies that develop or publish video games, facilitate the streaming and distribution of video gaming or esports content, own and operate within competitive esports leagues, or produce hardware used in video games and esports, including augmented and virtual reality,” according to Global X.
With HERO and related ETFs, video publishing, hardware and software get most of the attention, but investors shouldn’t lose sight of the massive esports opportunity.
“Sports sponsorship deals will generate at least $636.9 million in 2020. This would mark a Compound Annual Growth Rate (CAGR) of 16.6% and make commercial partnerships the top revenue source for competitive gaming globally,” according to SafeBettingsites.com.
Evaluating Esports
HERO’s underlying index features 38 stocks from nine countries. The bulk of the new ETF’s top 10 holdings are video game publishers, but the fund has exposure to hardware makers and semiconductor manufacturers, among other industries, as well. Data confirm those are good places to be this year.
Take-Two Interactive is one of the beneficiaries of that move toward increasing video game engagement. Chairman and CEO of Take-Two, Strauss Zelnik, noticed that there has been an uptick in demand for video game stocks as consumers have continued to pursue playing video games online at home during the quarantine.
Esports adds big revenue potential to the broader video game investment thesis.
“Sponsorships together with media rights are expected to generate 75% of the eSports sector’s total revenue. In 2020, this figure would be $822.4 million, increasing to $1.2 billion by the year 2023,” notes SafeBettingSites. “It is interesting to note, however, that digital revenues represent the industry’s fastest-growing revenue stream. Expected to generate $21.5 million in 2020, the digital revenue is growing at an astounding CAGR of 72.4%.”
As for a long-term view of HERO, consider the following spending trajectory. Hint: it’s positive for the Global X ETF.
“eSports was a relatively niche market back in 2014, worth about only $194 million. In only five years, it has grown at least five-fold in terms of revenue and is expected to reach $1.1 billion in 2020,” according to SafeBettingSites.
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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.