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Bet on 3 ETFs to Play "New Super Cycle" for Video Games

The video game industry is stealing the thunder of traditional media and entertainment. The segment is gradually transforming to offline from online. The stay-at-home-trend caused by the coronavirus pandemic made the segment more lucrative. eSports, mobile gaming, subscription models and streaming services are some of the emerging trends in this arena, per analysts.

New Super Cycle Hits

To add to the grandeur of the segment, Microsoft MSFT and Sony SNE have officially launched their latest next-generation consoles. The new systems, named the Xbox Series X and PlayStation 5 (PS5), showcase a number of comparable improvements over their forerunners including ray tracing technology for the more-impressive graphics and solid-state storage drives to lower load times, per a Yahoo Finance article.

The Xbox Series X and Series S were up for sale on Nov 10 internationally and the PS5 went on sale in the United States only on Nov 12. Globally, the PS5 will go on sale on Nov 19. Microsoft has dubbed the release of Xbox Series X and S as its biggest Xbox launch ever.

With this, the video gaming industry is now on the verge of entering a “new super cycle.” Some analysts are betting big on this new cycle, which has the potential to dole out profits of 8X to 18X, as it was indicated by Olivier Garret, CEO of RiskHedge, in January.

Last time that the duo surprised the video game market with such big announcements was in 2013. In 2013, PlayStation 4 and Microsoft’s Xbox One were launched in November. The launches acted as a cornerstone for the entire industry. That year, shares of Activision Blizzard ATVI and Electronic Arts EA rose 69% and 58%, respectively.

In January, Olivier Garret explained that when gamers buy video game consoles of Sony or Microsoft, they also buy some video games alongside. As a result, the entire industry benefits. His article published on Forbes had also noted that the last super cycle helped video game title sellers like EA throw off 1261% gains from 2012 to 2018, Take-Two Interactive (TTWO) shares skyrocket 1665% and ATVI add 690%.

The article also highlighted investment bank Cowen’s view which says, “Activision, Take-Two, and Electronic Arts beat the stock market by an average of 26% in the year leading up to the last three major console launches, which occurred in 2000, 2005 and 2013.”

Moreover, the holiday season is going to be a special tailwind for the segment. The latest report from The NPD Group projects that consumer spending on video games in the United States may touch $13.4 billion this holiday season (November and December 2020), increasing 24% year over year (read: Video Game Sales to Keep Rising in Holiday Season: ETFs to Gain).

Against this backdrop, one must take a look at the below-mentioned video gaming ETFs.

ETF Picks

ETFMG Video Game Tech ETF GAMR

GAMR tracks the EEFund Video Game Tech Index, which follows companies actively involved in the electronic gaming industry, including the entertainment, education and simulation segments. It charges 75 bps in fees. 

VanEck Vectors Video Gaming And ESports ETF ESPO

The fund ESPO follows the MVIS Global Video Gaming and eSports Index, which intends to track the overall performance of companies involved in video game development, eSports, and related hardware and software. The fund charges 55 bps in fees.

Global X Video Games & Esports ETF HERO

The underlying Solactive Video Games & Esports Index seeks to provide exposure to companies positioned to benefit from increased consumption related to video games & esports, including companies whose principal business is in video game development/publishing, video game & esports content distribution & streaming, operating/owning esports leagues/teams & producing video game/esports hardware. The fund charges 50 bps in fees.

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Sony Corporation (SNE): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Activision Blizzard, Inc (ATVI): Free Stock Analysis Report
Electronic Arts Inc. (EA): Free Stock Analysis Report
Global X Video Games & Esports ETF (HERO): ETF Research Reports
Wedbush ETFMG Video Game Tech ETF (GAMR): ETF Research Reports
VanEck Vectors Video Gaming and eSports ETF (ESPO): ETF Research Reports
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