Esports and video game ETFs are among the best-performing thematic ETFs this year and the VanEck Vectors Video Gaming and eSports ETF (NASDAQ: ESPO) is taking part in that rally.

ESPO seeks to track the performance of the MVIS Global Video Gaming and eSports Index (MVESPO). The index is a rules-based, modified capitalization-weighted, float-adjusted index intended to give investors a means of tracking the overall performance of companies involved in video gaming and eSports.

With gaming benefiting on multiple fronts, including the stay-at-home theme forced by the Coronavirus pandemic as well as a slew of new titles from popular franchises, ESPO, and its components are delivering for investors in 2020.

ESPO holds 25 stocks including “Nvidia, Tencent Holdings, Sea Ltd, Advanced Micro Devices, Activision Blizzard, and Nintendo,” reports Business Insider.

The exposure to AMD and Nvidia is important not only because those are two of the best-performing semiconductor stocks this year, but also because they act as diversifiers in the ESPO portfolio, which is to say those companies are levered to themes beyond gaming.

ESPO Excellence

The explosive growth of esports could even power the space past traditional sports where revenue generation is now heavily tilted towards enhancing a fan’s multimedia experience. This is an important concept in China where many younger demographics that are chock full of devoted gamers are highly technologically savvy.

In addition to the expected ongoing boom of esports, including among participants, bettors, and advertisers’ and networks’ desire to get a piece of the action, there are other longer-ranging catalysts for ESPO. Those include gamers’ diverse tastes for software, which allows the industry to appeal to a diverse cross-section of consumers.

“If investors maybe are a little bit wary of the broad stock market run that we’ve seen – I mean stocks are now back close to record high, so moving forward I think there are some concerns that maybe returns will be muted – I think that this is a space you can look for as a small satellite play that could potentially offer better returns,” said Nate Geraci of the ETF Store in an interview with Business Insider.

Adding to the case for ESPO is that gaming isn’t for kids anymore. Far from it.

“Right now, 64% of adults have played video games in the past three months – that’s adults, not kids… And I just think that if you want to look at a smaller niche area that could see some potential growth over the coming decade, I think this is a really interesting space to look at,” said Geraci.

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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.