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Slow Start Belies This New ETF's Massive Potential

December 17, 2018 8:24 am
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New exchange traded funds that debuted in October experienced the same elevated market volatility as their established counterparts. That doesn't mean the underlying investment ideas for October's crop of new ETFs is damaged.

Take the VanEck Vectors Video Gaming and eSports ETF (NYSE:ESPO), which debuted Oct. 16.

What Happened

The VanEck Vectors Video Gaming and eSports ETF, the second U.S.-listed ETF aimed at the e-sports and video game industries, is off about 10 percent since coming to market. Many of the fund's 25 components can be classified as growth or momentum stocks, two investment factors that fell out of favor in October.

While ESPO and its components did not perform well in October, other data points indicate the tenth month of the year was healthy for the video game industry.

“Vdeo game sales posted record-setting revenue numbers, the highest of any October since at least the mid-1990s,” said VanEck in a recent research piece. “We also saw the announcement of a flagship game being released as mobile-only, underscoring how publishers are adapting to the changing demands of consumers who are playing more games (and generating revenues) on their mobile devices.”

Why It's Important

ESPO's slump right of the gate could present prescient investors an opportunity to get involved with the new ETF.

“Also in October, a broad market pullback developed, which has affected some video game publishers and chipmakers,” said VanEck. “This market correction may present opportunities, as lower prices are now presenting relatively attractive valuations for companies affected by the downturn.”

ESPO follows the MVIS Global Video Gaming and eSports Index (MVESPOTR). That benchmark is “intended to track the overall performance of companies involved in video game development, esports, and related hardware and software,” according to VanEck.

What's Next

Recently released new titles could lift ESPO heading into the new year, particularly as holiday shoppers rush to scoop up those games.

“Two blockbuster releases drove this revenue number. Rockstar’s Red Dead Redemption 2 sold $725M worth of copies within the first three days of its release,” said VanEck. “Earlier in October, Activision’s Call of Duty: Black Ops 4 was released and earned $500M in sales in three days.”

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