Gaming ETFs Take Off

Who's to say that a diversified investment portfolio can't include something fun? The gaming industry is growing at a remarkable pace, and investors have an increasing number of entry points into this space. A recent report by ETF Trends suggests that, while "TV revenue fell by 8% last year, the gaming sector's sales are increasing at an annual rate of 10.7%." In China, game sales are rising by 14% per year. Alongside other relatively new markets for the industry, China is helping to fuel a new group of exchange-traded funds (ETFs) focused on gaming, and the opportunities for investors are immense.

A number of ETFs have launched with a focus on the gaming industry in recent years. The first of these, called the ETFMG Video Game Tech ETF (GAMR), was launched in March 2016. GAMR follows the EEFund Video Game Tech Index and holds roughly 60 securities. The large majority (more than 70%) of those holdings are in technology hardware, home entertainment software and internet software provider companies. Among the names you might expect to find in GAMR's holdings are video game software companies like Capcom Co. Ltd. (CCOEY) and hardware makers like Advanced Micro Devices, Inc. (AMD) or Intel Corporation (INTC). (See also: First-Ever Video Game ETF Launches.)

There are many developments taking place within the gaming industry that may make video game ETFs an important focal point for investors in the near future. Competitive video gaming, occasionally known as e-sports, may be poised to blow up the industry. Managing director and emerging markets portfolio manager for Lazard Asset Management Peter Gillespie suggests that, "as consumer trends grow in Asia in particular, we can see the continued growth of the gaming industry. We think local companies understand local markets better and would be able to take advantage of local preferences and become major game developers in their own right."

The technology behind video games continues to develop as well. Virtual reality hardware has only recently come into play in the video game world, and it's likely that this innovation will open up new avenues for video game developers, which might lead to increased interest and profits in the years to come as well. (For more, see: Investors May Love the Fast Action in Video Games.)

Further, multi-player games like "Fortnite" have taken the industry by storm in the past several months. "Fortnite" is a free game with an online social interaction component. Currently enjoying immense popularity with an audience of mostly adolescents, "Fortnite" has the potential to upend the gaming landscape with its costless model.

Take-Two Interactive Software, Inc. (TTWO) is a rival of "Fortnite's" developer, Epic Games. Take-Two CEO Strauss Zelnick commented on the popularity of "Fortnite," suggesting that it inspires companies like his to continue to improve and innovate. "Being derivative is not the way you win in the entertainment industry; you have to be innovative," he explained. "And what we focus on is bringing the highest quality of entertainment to consumers and blazing new trails." Take-Two is the publisher of the widely popular "Grand Theft Auto" series of video games.

In a certain light, video games cater to an audience that is perhaps as fickle as any demographic across industries. There is always an incentive to have the latest technology, the most addicting game, the most impressive platform and the smoothest user experience. Gamers will follow a popular game or company in droves or quickly move on to the next game if there are even slight reasons to be dissatisfied. Companies are always pushing for innovation, ensuring that the industry remains fresh. For ETFs like GAMR, this is more than enough of a reason to wager real-life investments on a virtual world. (For additional reading, check out: How to Game the Video Game Industry.)