Global X ETFs debuted three new ETFs on Tuesday: the Global X Video Games & Esports ETF (Nasdaq: HERO), the Global X Cybersecurity ETF (Nasdaq: BUG), and the Global X Thematic Growth ETF (Nasdaq: GXTG).

Pedro Palandrani, research analyst at GlobalX ETF, told ETF Trends that over the past 10 years, its clients had come to rely on them to develop very well-constructed Thematic ETFs to provide efficient exposure to disruptive themes.

“As more themes have come to fruition, the need to get exposure to multiple themes in a diversified and optimized way has become of paramount importance,” Palandrani said.

Global X Video Games & Esports ETF (HERO)

Global revenues for esports and video games in 2018 were nearly $140 billion according to analyst estimates,[1] and viewership of mobile and online gaming is expected to exceed nearly every professional sport by 2021.[2] Designed to track the Solactive Video Games & Esports Index, the Global X Video Games & Esports ETF holds a basket of companies that develop or publish video games, facilitate the streaming and distribution of video gaming or esports content, own or operate within competitive esports leagues, or produce hardware used in video games and esports, including augmented and virtual reality.

Global X Cybersecurity ETF (BUG)

Concerns over online security and cybercrime have reached an all-time high, with the cost of damages from these activities expected to cost $6 trillion annually by 2021.[3] Designed to track the Indxx Cybersecurity Index, the Global X Cybersecurity ETF holds a basket of companies that could benefit from increased adoption of cybersecurity technology, including companies whose principal business involves developing and managing security protocols to prevent intrusion and attacks on systems, networks, applications, computers, and mobile devices.

Global X Thematic Growth ETF (GXTG)

Aiming to provide investors with a cost-effective and efficient tool to access disruption across multiple themes and segments of the economy, the Global X Thematic Growth ETF tracks the Solactive Thematic Growth Index, which seeks to provide broad exposure to thematic growth strategies using a portfolio of Global X’s thematic growth ETFs. To determine which ETFs will be selected for inclusion, the index provider calculates an aggregate realized sales growth number based on the weighted average revenue growth of all the companies held by each potential underlying ETF, and the ETF with the highest aggregate realized sales growth within its sector assignment is selected for inclusion in the index. As of October 29, 2019, there were a total of seven ETFs in the index.

With GXTG, Palandrani said Global X is able to provide a single-ticker, multi-theme solution that can be used as a core thematic exposure in a growth-oriented portfolio.

“We believe that we are in the early stages of signification disruption happening across traditional sectors, and what is unique about GXTG is that it provides investors the ability to get exposure to the fastest growing themes that are disrupting these sectors in our economy,” he said. “For example, the traditional Communication Services sector is unequivocally being disrupted by innovations such as video games & esports as well as social media. These themes have become the new communication outlets in our society.”

In order to determine the exposure to the Thematic ETFs, Palandrani said the underlying index for GXTG first assigns each eligible Thematic ETF to a traditional sector. Next, at the annual reconstitution the index applies a quantitative screen on the underlying securities comprising each eligible ETF to determine each ETF’s aggregate sales growth metric. This sales growth metric is used to determine the Thematic ETF with the highest aggregate realized sales growth within a given traditional sector, which ultimately determines the selection for inclusion in the index.

“In our example above, the Global X Social Media ETF and the Global X Video Games & Esports ETF are both assigned to the same traditional sector of Communication Services, but the Global X Social Media ETF has a higher aggregate realized sales growth number, as of the date of the most recent index reconstitution,” Palandrani said. “As a result, the Global X Social Media ETF is included in the index along with the Thematic ETFs with the highest sales growth metric from each other traditional sector. The index then applies an additional weighting scheme that allocates additional exposure to the most disruptive innovations, in this case defined by those Thematic ETFs with the highest sales growth rates that have already been selected into the index. This selection and weighting approach helps to ensure a level of diversification while still seeking to allocate more exposure to the themes with highest sales growth rates.”

Each ETF included in the Solactive Thematic Growth Index receives a starting weight of 7.5%. ETFs that have a sales growth number in the top half of the ETFs included in the index receive an additional weight of 7.5%. The individual ETF with the highest sales growth receives an additional weight of 7.5%. The weight of any single ETF is capped at 25% and the remaining weights are distributed evenly among the remaining ETFs included in the index. Holdings will be reevaluated for inclusion in the index annually, and rebalancing will occur semi-annually.

For more thematic investing ideas, visit our Thematic Investing Channel.

[1] newzoo, “2018-2022 Global Games Market,” 2019.

[2] Syracuse University, “With Viewership and Revenue Booming, Esports Set to Compete with Traditional Sports,” Jan 18, 2019.

[3] Cybercrime Magazine, “Global Cybersecurity Spending Predicted To Exceed $1 Trillion From 2017-2021,” Jun 10, 2019

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