Market Overview

Macau Poised To Boost Casino ETF

Macau Poised To Boost Casino ETF

The VanEck Vectors Gaming ETF (NYSE: BJK), the only exchange traded fund dedicated to casino and gambling stocks, is up modestly this year and higher by nearly 35 percent over the past 12 months. Bullish data out of Macau cold support further upside for BJK.

BJK marked a decade on the market in January. The ETF tracks the MVIS Global Gaming Index, “which is intended to track the overall performance of companies involved in casinos and casino hotels, sports betting, lottery services, gaming services, gaming technology and gaming equipment,” according to VanEck.

An important driver of BJK's performance is Macau, the world's largest gambling hub and the only Chinese territory where gambling is legal. Fortunately for BJK, recent data points out of Macau are encouraging.

Solid Start To 2018 For Macau

“Fitch Ratings forecasts Macau's gaming revenue growth to come in at a solid 13 percent this year (down from 19 percent in 2017) driven by 16-percent growth in the mass market segment and 10 percent in VIP — the market is about equally weighted to each of these segments,” Fitch Ratings said in a recent note.

BJK holds 43 stocks and the ETF reflects the global nature of the gambling business, with the U.S. commanding just 41 percent of the fund's geographic exposure. China is the BJK's second-largest geographic weight at 18.1 percent. Overall, the $57.1-million BJK features exposure to 15 countries, five of which are classified as emerging markets.

Some of BJK's largest holdings include Las Vegas Sands Corp. (NYSE: LVS), MGM Resorts International (NYSE: MGM) and Wynn Resorts Ltd. (NASDAQ: WYNN) as well as the Macau units of those companies.

Cautious On Credit

VIP gamblers are major sources of revenue for Macau casinos. That segment is rebounding, but there are also reasons for caution on the group.

“While we are more cautious on the VIP segment, which declined nearly 60 percent from peak to trough in the recent downturn, we feel it is now more sustainable,” said Fitch. “Much of the recent downturn was driven by a corruption crackdown in mainland China. High net worth gamblers now appear to better understand the current policy environment and are more willing to gamble in Macau. Junkets, a major conduit of VIP gambling through credit extensions and relationship-building, have been consolidated, and are more disciplined and more regulated. Still, caution is warranted given the segment's reliance on credit and some credit tightening measures taking place on the mainland.”

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