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New High Score: Evolve ETFs CEO On Hitting $1B AUM And The Surging Video Games Sector

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New High Score: Evolve ETFs CEO On Hitting $1B AUM And The Surging Video Games Sector

Despite the uncertainty playing out in the financial world, Canadian ETF provider Evolve has garnered a good deal of investor attention and capital through 2020, recently achieving the major milestone of surpassing $1B assets under management (AUM).

Fund flow into the company’s stable of high-tech and emerging industry ETFs has thrived through the global pandemic as investors have looked to technology to mitigate or solve the problems posed by the ongoing health crisis. Investment into Evolve’s funds has been so enthusiastic that, just this summer, the company surpassed the $1B AUM mark after less than three years of its first ETF listing.

Benzinga had the opportunity to speak with Evolve ETFs President and CEO Raj Lala about the AUM milestone as well as the provider’s E-Gaming Index ETF (TSX:HERO), which, after one year since its launch as Canada’s first gaming and e-sports ETF, has gained roughly 50% in net asset value and is among the provider’s top-performing funds.

image1_17.png

Total Return Performance (%)

     

TICKER

NAME

YTD

1 YR

SINCE INCEPTION**

HERO

Evolve E-Gaming Index ETF

38.46

49.73

47.31

Source: Bloomberg, as at July 31, 2020.

** Since Inception on June 17, 2019.

     

Said Lala, “We want to make sure that the themes we’re bringing to investors — the underlying portfolio that is usually comprised of the index — is not going to be overlapping or duplicative to what investors already have in their portfolio.”

How Evolve Managed $1 Billion

According to Lala, Evolve’s path to $1B AUM is the result of creating ETFs that are the product of a very deliberate process. The process starts by recognizing new and emerging themes within the global economy and understanding whether that theme has the potential to develop and thrive beyond the immediate hype surrounding it.

This includes looking at the major players within the space and the investments being made in that segment, but it also involves looking at the larger economic or cyclical factors that could impact the industry.

“One of the first things we consider when we look at a particular sector or theme or strategy is to confirm there’s a solid long-term investment thesis attached to them,” said Lala. “The next thing we ask is how would a sector like this, a theme like this, perform in different market environments or different economic environments?”

Insert Coin: Click Here to Register for Evolve’s Webinar on eGaming Investing

However, what tends to set Evolve’s funds apart from other index-based funds is the attention paid to how the individual components work, both within the fund as well as within an investor’s portfolio.

“One of the valuable components of the process is how will this fit into a client portfolio,” Lala explained. “What is the function of this sector? Is it there to be just a pure alpha generator? Is it there to provide some diversification? We need to go through that process to fully understand and appreciate how this fits into a client portfolio.”

The most unique factor in this consideration is what companies truly represent an industry versus those that simply pad out a fund’s top holdings. It was here that Lala dove into his view of the HERO ETF and what sets it apart from other gaming and esports funds.

100% Dedicated To Gaming

Lala did not mince words in his appraisal of what distinguishes HERO from other funds in the industry. Like Evolve’s other ETFs, HERO is heavily focused on delivering its promise of providing pure exposure to the gaming industry without any fluff or overlap.

“That’s a really big issue in the ETF world today where you have these funds where when you actually drill down into it it’s not really that representative of what you’re getting within,” said Lala. “For example, we know Apple is involved in gaming with Apple arcade, as is Amazon with Twitch and Google with Stadia. Are those going to be three of our top five holdings? That’s not really an e-gaming ETF, is it? It’s a big tech ETF warehouse.”

This view is backed up by looking at HERO’s top holdings, which is stacked with the videogame industry’s top developers, including the likes of Activision Blizzard, Inc. (NASDAQ: ATVI), Take-Two Interactive Software, Inc. (NASDAQ: TTWO) and Nintendo Co., Ltd. (OTC: NTDOY).

And while this excludes the aforementioned tech giants like Apple, Inc. (NASDAQ: AAPL) and Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL) or semiconductor giants like Nvidia Corporation (NASDAQ: NVDA), it makes HERO a much more targeted and dedicated fund for those looking for pure exposure to gaming without any overlap or excess, something Lala says Evolve is committed to providing investors.

A Powered Up Industry

Lala’s focus on HERO during the interview was a consequence of the video game industry’s history of strong performance, a trend that has only accelerated during the pandemic. The result has been a rash of new gaming ETFs and heightened investor interest in the industry.

“I think many people are unaware of is how big of an industry it actually is,” Lala said. “The video game industry is nearly triple the size of the film and music industry combined so people are really starting to take notice of it.”

Of course, it’s difficult to overlook the primary catalyst affecting the global economy writ large. From Lala’s perspective, the constraints of the global pandemic have further opened the door to increased videogame adoption to the mainstream, both in terms of hardcore and casual players, but also streaming and esports viewership.

CONTINUE? Learn About the Biggest Investment Trends in eSports and Online Gaming

Perhaps the biggest driver promising to help the gaming industry retain its current size is the value proposition gaming represents. With roughly 33% of households in the U.S. owning a gaming console, and more than 80% of individuals owning a smartphone, access to games has never been easier and engagement has never been higher.

“When we think of a recessionary environment we often think of investing in things like gold or maybe even healthcare,” Lala explained. “But we don’t think of sectors like e-gaming as one of those somewhat recession-proof sectors. But when you piece it all out it makes sense.”

This trend has borne out in the recent recessionary environment. The latest readings from the Commerce Department have shown Americans are spending less and saving more as the pandemic worsens and financial insecurities mount. Nevertheless, Nintendo Co., Ltd. recently released earnings for the April-June period that showed 80% year-over-year sales growth in the Americas while the most recent quarterly report from Sony Corporation (OTC: SNEJF) was almost solely supported by growth in the tech company’s gaming segment.

Bonus Level

Looking ahead, Lala sees continued momentum supporting the videogame industry. And while continued social distancing measures and a slate of new consoles from Sony Corporation (NYSE: SNE) and Microsoft Corporation (NASDAQ: MSFT) will no doubt keep interest in gaming high going through the holidays, Lala believes the biggest growth is in the casual market and on mobile devices.

“For the hardcore gamers, console sales have been booming during work from home, there was a waiting list to get the Switch and Xboxes and PS4s, the PS5 is coming out this fall,” Lala said. “But at the end of the day, if you’re going to have true success in game manufacturing, you have to modify your game to also provide a mobile experience. Call of Duty has gone mobile and their sales have increased partially because of it.”

This view is echoed in the distribution for HERO, which includes shares of mobile developers like Zynga Inc. (NASDAQ: ZNGA) and South Korea’s NEXON Co., Ltd. (OTC: NEXOF). Lala sees developers like this, as well as larger developers like Activision Blizzard making in-roads into mobile, expanding the mobile segment to as much as 60% of the total video game market.

And, as far as Apple and Google’s attempts to broach the gaming landscape through subscription services like Apple Arcade and Google Stadia, Lala does see the potential. However, he also contends that these platforms have missed the mark due to the lack of focus on high-quality content. He instead points to subscription services from companies that have solid content libraries that can drive engagement, like Electronic Arts Inc. (NASDAQ: EA) and Microsoft’s recently announced xCloud service.

With interest in video games reaching a fever pitch in the depths of the pandemic, e-sports leagues garnering greater attention and ad-revenue, and entire generations being raised with video games, the industry is finding ever-greater presence in the global mainstream.

“I do think that you’re going to have greater adoption and greater viewership as it relates to gaming in general. It’s not just a COVID thing, this has been coming for a while.”

Interested in learning more about the Evolve E-Gaming Index ETF? Click here!

 

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