There are many exchange-traded funds (ETFs) on the ASX, but one of the best could be VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO).
What’s VanEck Vectors Video Gaming and eSports ETF all about?
The idea of this investment is that investors can get exposure to a portfolio of the largest businesses that are from the game development, e-sports and related hardware and software global sector.
The gaming sector is huge
VanEck says that there are now more than 2.7 billion active gamers worldwide. Not only that, but the video gaming business is now larger than both the movie and music industries combined. It has become a major industry in the entertainment space.
It’s not just casual gamers that are causing growth. The top e-sports tournaments attract viewer numbers that rival World Cup football and the Olympic Games.
With video games now available on our phones, people can decide to play anywhere at any time. They don’t need to bring their gaming console with them.
There is large revenue growth across the world
As a group, the underlying businesses in this portfolio have been achieving consistently-growing revenue.
Since 2015, video gaming has achieved average annual revenue growth of 12%. E-sports has seen revenue growth of an average of 28% per annum since 2015.
According to the Newzoo Global Games Market Report, the Asia Pacific region is forecast to show gaming revenue of US$78.4 billion in 2020, amounting to almost half of the global games market.
The Middle East and Africa region is expected to be the fastest growing games market from 2020, with 14.5% year on year growth to US$5.4 billion.
New revenue streams
E-sports has the potential to create new revenue and earnings streams.
More products and services could mean more profit and help shareholder returns of those businesses.
Those new revenue streams includes game publisher fees, media rights, merchandise, ticket sales and advertising.
Gaming businesses have the potential to earn higher profit margins as they benefit from more global interest. Once a game developer has created the game, extra game sales should mostly add to the bottom line, apart from distribution costs.
What shares are actually in the VanEck Vectors Video Gaming and eSports ETF portfolio?
A few days ago on 27 May 2021, the ETF’s biggest positions were: Nvidia, Sea, Tencent, Advanced Micro Devices, Nintendo, Activision Blizzard, Netease, Take Two Interactive, Bilibili, Electronic Arts, Bandai Namco and Unity Software.
It has a total of 25 positions across the portfolio with the US, Japan and China making up the bulk of the geographical diversifications.
Fees and returns
The management costs of this investment is 0.55% per annum.
Whilst past performance is not an indicator of future performance, the returns in recent times have been above average compared to general share markets.
The index that VanEck Vectors Video Gaming and eSports ETF tracks has delivered an average return per annum of 32.4% over the last three years.