Bad Beat: The Case For The Gambling ETF
Global gambling revenue jumped to $419 billion last year from $397 billion in 2010 and is forecast to reach $448 billion in 2012, according to Bloomberg. Said another way, more money will be spent on gambling across the globe this year than the economic output of developed countries such as Austria and Denmark.
Global gaming revenue in 2012 could also be roughly 33% larger than Greece's 2011 GDP. With that, it can be argued that it's odd that there's just one ETF devoted to the gambling industry, the Market Vectors Gaming ETF (NYSE: BJK).
Despite the robust liquidity sported by most U.S. casino stocks, . Home to almost $74 million in assets under management, BJK devotes over 22% of its weight to Las Vegas Sands (NYSE: LVS) and Wynn Resorts (Nasdaq: WYNN). That may deceive investors into thinking this is a domestic-focused fund. In fact, it is not. Nearly two-thirds of BJK's country weight is ex-U.S. and the fund is uniquely positioned to profit from the global gambling boom.
"We believe that it is important for a gaming index to have exposure to international markets, especially those that are experiencing rapid growth, such as Macau, Singapore and Vietnam," Wells Gaming Research President Richard Wells told Benzinga in an interview. "Singapore and Vietnam are emerging markets with significant growth. We believe that the Philippine and other Asian countries will also be moving to develop destination casino resort facilities."
Statistics prove Asia is the place to be for casino operators. Macau, the only Chinese territory where gambling is legal, is the world's top gambling destination by revenue. Singapore is second. China accounts for 20.2% of BJK's weight and several other Asian nations represent another 14% of the fund's overall country allocations.
While BJK has struggled in recent weeks as global markets have fretted over lingering concerns regarding Europe's sovereign debt crisis, among other macroeconomic issues, the fund is still up almost 17% year-to-date and more than 4% over the past year.
Even with those bullish statistics, an environment that has generally been risk off in nature has impacted BJK.
"Year-to-date, as well as for the one year period, BJK shares outstanding have decreased, which we believe can be primarily attributed to the general risk-off actions of investors associated with a high level of uncertainty in the global market," Brandon Rakszawski, Market Manager for Market Vectors, told Benzinga.
For now, it's reasonable to say BJK and its constituents will be held hostage by the risk off trade, but that does not diminish the ETF's long-term prospects. As Wells noted, both major Singapore casinos are represented in the ETF and MGM Resorts (NYSE: MGM) and Pinnacle Entertainment (NYSE: PNK), two BJK holdings each have footprints in the fast-growing Vietnam market.
The chart isn't attractive at the moment, but if BJK comes down to the $32-$33, that could be the area to put some chips down on BJK in anticipation of a return to $36 later this year.
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