The VanEck Video Gaming and Esports ETF (ASX: ESPO) has been one of the strongest-performing ASX-listed exchange-traded funds (ETFs) over the past year, up 38%. For gamers who want to own a piece of the companies they're gaming with, this ETF could be an effective way to do just that.
Individually, these gaming companies have already delivered solid long-term returns. And over the five years to 30 September 2024, the index that this ESPO ETF tracks delivered an average return per year of 19.2%.
Of course, past performance is not a guarantee of future performance with any investment. But there are positive signs that the underlying businesses may be able to keep performing over the long term.
The ESPO ETF invests in the largest and most liquid companies worldwide involved in video game development, e-sports, and related hardware and software.
It's portfolio is well-positioned to benefit from the increasing popularity of video games and e-sports.
Which shares are in the VanEck Video Gaming and Esports ETF portfolio?
Gamers may recognise many of this ASX ETF's largest holdings. There are a total of 25 positions in the portfolio, so investors are getting broad exposure to the industry.
Currently, positions with a weighting of at least 4% include Tencent, Advanced Micro Devices, Applovin, Nintendo, Netease, Electronic Arts, Unity Software and Roblox. Aristocrat Leisure Limited (ASX: ALL) is in there representing Australia, alongside Gamestop, Krafton, Take-Two Interactive, Konami, Bandai Namco and Capcom. Ubisoft is also a position in the portfolio though it only has an allocation of approximately 1%.
Many of these businesses are exposed to powerful tailwinds, which have been outlined in a report.
Strong tailwinds to help the ESPO ETF
Newzoo's 2024 global games market report said the global games market was forecast to generate $187.7 billion of revenue. This represents a 2.1% year-over-year increase. I think that's impressive considering the elevated interest rate and inflationary environment we're in. It also shows the resilience of the underlying companies within the ESPO ETF.
The number of global paying gamers is expected to rise by 5% to 1.5 billion in 2024 and reach 1.67 billion by 2027. This would represent an 11.3% rise over the three-year period. In addition, the number of players globally (including 'free' players) is forecast to reach 3.42 billion in 2024. That's a 4.5% increase year over year.
Interestingly, the Asia Pacific region is projected to make up 1.8 billion of the 3.4 billion total gamers. Other areas of the world are also seeing the strongest growth rates. Latin America is expected to see a 5.6% year-over-year growth of gamers to 355 million in 2024. Meanwhile, the Middle East and Africa are forecast to see an 8.2% year-over-year rise to 559 million gamers.
According to Newzoo, mobile gaming is expected to see a 3% rise of revenue to $92.6 billion. This represents 48% of this year's global revenue thanks to "improving economic conditions, the continuous performance of existing games, and a few recent heavy hitters".
Newzoo also stated that popular live-service titles like League of Legends, Fortnite and Counter-Strike kept players "engaged essentially forever". They were "still immensely popular and attract a growing share of total playtime and subsequent spending".
The report includes a forecast that total gaming revenue could reach $213.3 billion in 2027, representing a 13.6% rise from the forecast figure for 2024. This may be the best tailwind of all for the ASX ETF's future returns.
I think all of the above are solid growth tailwinds for the companies within the ESPO ETF. This includes the strong revenue growth forecast, which could help profits and share prices continue to rise over the next few years.
