The VanEck Video Gaming and Esports ETF (ASX: ESPO) could be a solid investment pick in my opinion.
What is VanEck Video Gaming and Esports (ESPO) ETF?
This investment is about the e-sports and video gaming sector. Businesses must generate at least 50% of their revenue from video gaming and/or e-sports to be included.
There are currently 26 names from across the world in the portfolio. You might recognise several of the largest 10 positions: Nvidia, Tencent, Advanced Micro Devices, Sea, Nintendo, Activision Blizzard, Netease, Electronic Arts, Bandai Namco and Take-Two Interactive Software.
Why is this a good investment idea?
There is increasing global popularity for video games and e-sports. Increasing levels of the global middle class in places like Asia and Africa is driving demand higher.
E-sports reportedly gets huge audiences that are comparable to the Olympics.
Video gaming and e-sports are really shaking up the entertainment industry.
In some ways, gaming is a pretty defensive industry. I’d imagine people will continue gaming whether GDP is up 1% or down 1% in any given year over the next decade.
But gaming businesses can actually achieve very attractive profit margins because of the nature of gaming (it’s software, so it doesn’t cost much to replicate).
VanEck says that e-sports has created new potential revenue streams from game publisher fees, media rights, merchandise, ticket sales and advertising.
Video gaming has achieved 12% average annual growth since 2015. When you combine that with defensive earnings and typically high margins, I think it can be a winning combination into the future.
Management fee
It’s worthwhile for all ETF investors to be aware of the management cost. ESPO ETF has annual fee of 0.55%. That’s not bad, but not the cheapest.
Returns
Returns are what investing is ultimately all about, but no-one can know how good they are going to be. Past performance is not a reliable indicator of future performance.
But, over the last three years, the index that the ESPO ETF tracks has seen a return of 26.4% per year. I’m not expecting the next three years to be as good, but it certainly shows how good this portfolio of businesses have performed.
