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ETFs to Gain as Microsoft Bets Big on Video Gaming

Gaming has been the hottest corner in the entertainment industry. As stay-at-home trends lead to higher demand for gaming amid the COVID-19 pandemic, most technology companies are jumping on the space or bolstering their position to gain market share. As such, mergers and acquisitions are not a surprise deal in the gaming space.

The world's largest software maker Microsoft MSFT plans to acquire ZeniMax Media Inc., owner of the storied video-game publisher Bethesda Softworks, for $7.5 billion in cash. This would represent its biggest video game purchase ever.

The proposed deal will bolster Microsoft’s Xbox original games portfolio with a number of the industry’s highest-profile titles including Elder Scrolls, Doom, Fallout, Qyuake, Wolfenstein, Dishonored, Prey and Starfield. It will bring high profile publishers, including Bethesda Game Studios, id Software, ZeniMax Online Studios, Arkane, MachineGames, Tango Gameworks, Alpha Dog and Roundhouse Studios, under the Microsoft gaming roof (read: ETFs to Shine Bright on Rising Video Streaming Trend).

With the additions, Microsoft’s portfolio will expand from 15 to 23 creative studio teams. The software maker plans to bring Bethesda's iconic franchises into its monthly Xbox Game Pass subscription service when they launch on Xbox or PC. The Xbox Game Pass now has more than 15 million subscribers.

The deal, which is expected to close in the second half of 2021, will not likely affect its non-GAAP earnings for this year or next. The move comes more than a week after Microsoft's failed bid for short video app TikTok's U.S assets.

ETFs to Gain

The deal announcement is expected to spread some cheer to ETFs with double-digit exposure to Microsoft amid the market turmoil. Below we have highlighted some of them:

Select Sector SPDR Technology ETF XLK

This most-popular technology ETF follows the Technology Select Sector Index and has $34 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in a heavy volume of around 10.7 million shares a day on average. It holds about 72 securities in its basket, with Microsoft occupying the second position at 20.2%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Buffet's Berkshire Taking Interest in Technology: ETFs to Play).

iShares U.S. Technology ETF IYW

This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 156 technology stocks. Of these, Microsoft occupies the second position in the basket with 17.5% of the assets. The fund has an AUM of $5.8 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 159,000 shares a day. The fund has a Zacks ETF Rank #1 with a Medium risk outlook.

Vanguard Information Technology ETF VGT

This fund manages about $35 billion in its asset base and provides exposure to 328 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the second position with a 16.8% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 810,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: 5 Top-Ranked Tech ETFs to Buy on the Dip).

MSCI Information Technology Index ETF FTEC

This fund is home to 321 technology stocks with an AUM of $4.4 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with a 16.5% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 471,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.

iShares Evolved U.S. Technology ETF IETC

This is an active ETF, having accumulated $93.5 million in its asset base. It employs data science techniques to provide exposure to 235 technology stocks. Microsoft is the top firm with a 14.5% allocation. IETC trades in a light volume of 36,000 shares and charges 18 bps in annual fees (see: all the Technology ETFs here).

iShares Global Tech ETF IXN

This product provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology Sector Index. Holding 121 stocks in its basket, Microsoft occupies the second spot with a 16% share. The ETF has amassed $4.2 billion in its asset base and trades in a good volume of 69,000 shares a day on average. Expense ratio came in at 0.46%.

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Microsoft Corporation (MSFT): Free Stock Analysis Report
 
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
 
Fidelity MSCI Information Technology Index ETF (FTEC): ETF Research Reports
 
iShares Global Tech ETF (IXN): ETF Research Reports
 
Vanguard Information Technology ETF (VGT): ETF Research Reports
 
iShares U.S. Technology ETF (IYW): ETF Research Reports
 
iShares Evolved U.S. Technology ETF (IETC): ETF Research Reports
 
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