I like the idea of finding investment trends where businesses can benefit from a tailwind that pushes their earnings higher. In my opinion, exchange-traded funds (ETFs) give us the option to get exposure to compelling trends. One of the most interesting ones, in my view, is the VanEck Video Gaming and Esports ETF (ASX: ESPO).
As the name suggests, it's focused on the video gaming and e-sports industry.
According to VanEck, the video game sector is now larger than both the movie and music industries combined. The top e-sports tournaments are reportedly drawing crowds that rival World Cup football and the Olympic Games. The decade of the 2010s saw "massive growth in viewership and big brand sponsorships", VanEck says.
How fast is video gaming growing?
Newzoo data shows that video gaming has achieved 12% average annual revenue growth since 2015, while e-sports revenue has grown by an average of 28% per year since 2015.
VanEck also referred to research via Newzoo that the world's 2.7 billion gamers will spend $200 billion by 2023.
E-sports has created new potential revenue streams for the businesses involved with video gaming such as game publisher fees, media rights, merchandise, ticket sales, and advertising.
What businesses are in the ETF's portfolio?
Businesses that are in the portfolio need to generate a significant portion of their revenue from the video gaming and e-sports industry.
There are meant to be a total of 25 holdings in the VanEck Video Gaming and Esports ETF portfolio.
Readers may have heard of some of the largest holdings such as Tencent, Activision Blizzard, Nvidia, Advanced Micro Devices, Roblox, Nintendo, Netease, Bandai Namco, and Electronic Arts.
Many of the world's most popular game titles are covered by the businesses I just mentioned.
The portfolio provides more geographic diversification than other typical ETFs based on a global portfolio. For example, the US represented 41.6% of the portfolio, Japan was 21.7% of the portfolio, China was 17.3%, Australia was 5%, Singapore was 3.5%, France was 3%, South Korea was 2.9%, Sweden was 2.3%, Taiwan was 1.8%, and Poland was 0.8%.
Annual management fee
The ETF has management costs of 0.55% per annum. While this isn't as cheap as something like Vanguard MSCI Index International Shares ETF (ASX: VGS), there is more to the returns than just the fees.
So what are the returns?
Ultimately, we're investing to make returns. Since listing, the VanEck Video Gaming and Esports ETF has had a rough time of it amid inflation and rising interest rates.
Since the start of 2022, the ETF has shed 32%. Taking a longer view, however, it has dropped 5.7% since listing to 31 August 2022.
But, this ETF actually tracks an index of gaming shares. The index has existed for more than five years, and has returned an average of 16.2% per annum. However, past performance is not a predictor of future results though.
