Market Overview

eSports A Catalyst For Video Game ETF

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eSports A Catalyst For Video Game ETF

The ETFMG Video Game Tech ETF (NYSE: GAMR) surged 59.5 percent last year, making it one of 2017's best-performing non-leveraged exchange-traded funds. That stellar performance also makes it difficult for the lone dedicated video game ETF to outdo itself in 2018.

Credit to GAMR because it's trying to top that amazing 2017 showing. Sure, 2018 is still in its infancy, but the video game ETF is already up about 8 percent after flirting with a record high last week. GAMR, which turns two years old in March, tracks the EEFund Video Game Tech Index.

That “index is designed to reflect the performance of companies involved in the video game technology industry, including game developers, console and chip manufacturers and game retailers,” according to New Jersey-based ETF Managers Group Inc. (ETFMG).

Excellent eSports

The fast-growing eSports phenomenon is seen as a bona fide catalyst for GAMR and its components.

“The growth in popularity of eSports will benefit some sectors at the expense of others,” according to Fitch Ratings. “Video game companies are best positioned to benefit from increased franchise popularity and growth and a favorable shift to less volatile advertising and sponsorship revenues.”

GAMR holds 58 stocks, nearly two-thirds of which are considered home entertainment software makers. Application software and Internet software makers combine for 15.7 percent of GAMR's roster. Technology hardware and semiconductor makers combine for almost 12 percent of the ETF.

“The major video game publishers are dedicating resources to develop eSports strategies around key franchises,” said Fitch. “The differing approaches range from focusing on the top tier of professional competition to attract major media contracts, to facilitating smaller, localized tournaments to help grow overall player engagement.”

GAMR Drivers

Well-known members of GAMR's lineup include Take-Two Interactive Software, Inc. (NASDAQ: TTWO), Activision Blizzard, Inc. (NASDAQ: ATVI) and Zynga Inc. (NASDAQ: ZNGA).

“Fitch believes that the continued growth and awareness of eSports will benefit video game publishers through higher active user bases, increased sales of high-margin micro transactions and higher sustainability/longer revenue-generating lifespan of core franchises that are transitioned into eSports,”  the ratings agency said. “The dollar potential of media rights will also be a long-term cash flow opportunity and potential credit positive, once user engagement is quantified on a more standardized level.”

eSports is currently a $700 million industry, a fraction of the multi-billion dollar enterprises that are traditional sports leagues, such as the NBA and NFL.

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