Under The Hood: Rolling The Dice

Gone are those dark days during the financial crisis when Las Vegas became almost a ghost town and getting a spot at a table at the Venetian was easier than pie. And gone are the days that casino stocks were not far removed from financials and automakers as the worst market victims of the recession. Indeed, the likes of Las Vegas Sands LVS and Wynn Resorts WYNN have rebounded nicely as has the Market Vectors Gaming ETF BJK, today's “Under The Hood” candidate. In fact, BJK, the first ETF focused on the global gambling industry, has soared almost 45% in the past year and while Vegas will always be Vegas and whatever we want to stay there will stay there, Sin City isn't what has been driving BJK and the gambling industry at large. The real driver of global gambling these days is the Chinese island of Macau, the former Portuguese colony and now the world's largest gambling mecca. In other words, if one is going to roll the dice on casino stocks, best to do so with a company that has big Macau exposure. On second thought, just play BJK, which allocates almost 13% of its weight to Hong Kong. That's where most Macau plays are listed. Among the ETF's 56 stocks, Las Vegas Sands and Wynn account for a combined 20%, but the Macau versions of those two companies combine for 8%, highlighting BJK's usefulness as a Macau play. Trust in the fact that you want Macau exposure. Gambling revenue there topped $3 billion for the first time in May, good for the fifth monthly record in the past six months and there isn't an estimate out there that forecasts anything but soaring revenue in the coming years for the only place in China where gambling is legal. Malaysia is another major Asian gambling destination and that country accounts for 12% of BJK's weight. Along those same lines, Singapore is rapidly rising on the global gaming stage and it will be interesting to see if BJK alters its composition to add Singapore to its mix. If the ETF is rebalanced in the coming months, it will also be worth watching to see if MGM's MGM Macau IPO is added to the fund's holdings. The reality is Vegas is so yesterday when it comes to investing in casino stocks. Macau is the today and the tomorrow of this investment thesis and that bodes well for BJK going forward.