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Video Gaming ETFs Capture a Rising Growth Opportunity

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With everyone stuck at home in a post-coronavirus pandemic world, video gaming sector-related exchange traded funds have capitalized on the increased demand for in-home entertainment to idle the time away.

Year-to-date, the VanEck Vectors Video Gaming and eSports ETF (ESPO) increased 53.4%, Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSE ARCA: NERD) rose 51.8%, Wedbush ETFMG Video Game Tech ETF (NYSEARCA: GAMR) advanced 48.4% and Global X Video Games & Esports ETF (HERO) gained 57.3%.

The Solactive Video Games & Esports Index, which acts as the benchmark for the Global X Video Games & Esports ETF, surged 77% since the start of U.S. state lockdowns in March, Bloomberg reports.

“Video games and esports are the true champions,” Pedro Palandrani, a research analyst at Global X Management Company LLC, an investment firm that manages HERO, told Bloomberg.

Looking ahead, Palandrani also projects the sector to continue to grow even after the initial stay-at-home bump.

“This is something that will continue to rise for years to come,” Palandrani added.

Electronic Arts Inc., the publisher behind Apex Legends and Madden NFL, recently revealed record sales after tens of millions of new player sign-ups. Activision Blizzard Inc. and Take-Two Interactive Inc. also announced strong showings during the Covid-19 shift in consumer habits.

Furthermore, these strong growth trends for the video gaming industry have all come in before pre-holiday releases of new consoles from Sony Corp. and Microsoft Corp., which are expected to add new distractions and entertainment choices for consumers in the months ahead.

However, investors, notably institutional-sized money, may not have been as focused on this growing trend. For example, according to Bloomberg data, cloud-computing ETFs have an average return of 49% compared to gaming ETFs’ 56%, but cloud-computing ETFs attracted inflows that are eight times greater than gaming ETFs.

“It’s odd to me that video gaming is being ignored by advisers,” Eric Balchunas, an ETF analyst at Bloomberg Intelligence, said. “The numbers are there.”

Balchunas showed surprise that baby boomer financial advisers “don’t know how big it’s getting” from watching their kids and grand kids.

Palandrani also highlighted how broad and dynamic online games are, along with the ways they can supplement or replace other forms of social media.

“These behaviors are sticky,” Palandrani added. “As video games continue to expand their audience and add additional features, it is emerging as potentially the next generation of the internet: a metaverse filled with millions of users interacting in a truly lifelike virtual reality.”

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