As the video game industry reaches stratospheric highs (by some estimates $ 152 billion this year), issuers of exchange-traded funds are responding to investor demand for nuanced funds focused on this growth. One of the newcomers to this fray is the Defiance NextGen Video Game ETF (NYSE: VIDG).
VIDG, which tracks the BlueStar Next Gen Video Gaming Index, a modified capitalization-weighted index with a strong emphasis on the hardware (consoles) and software (game publishers) aspects of the video game industry.
These are great opportunities for investors as new games are a big driver in the industry and a major console upgrade cycle is slated for 2020 as Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE) are launching new versions of Xbox and PlayStation.
VIDG allocates 3.14% of its weighting to Microsoft, making it one of the few funds exposed to video games to place the software giant among its top 10 holdings.
Why it matters
In addition to hardware manufacturers, the main drivers of VIDG’s price action are well-known software manufacturers, such as Activision Blizzard (NASDAQ: ATVI), Electronic arts (NASDAQ: EA) and Take-Two interactive software (NASDAQ: TTWO).
“We anticipate that companies with high-quality franchises and development capabilities will continue to attract large audiences, and further distribution fragmentation should generally prove positive for the economic moats of the four game publishers we cover.” : Activision, EA, Take-Two and Ubisoft, ” Morningstar said in a recent note.
Activision, EA and Take-Two combine for more than 15% of VIDG’s weight, according to the data of the transmitter.
For investors who want to take a long-term view of video game ETFs like VIDG, exposure to high-end software vendors is an important factor to consider, as these companies have legacy franchises, the loyalty of the customer base and some pricing power. Activision, EA and Take-Two match these invoices.
“We believe the video game publishers we cover are rightly rated as undervalued despite our neutral opinion, relative to the positive market opinion, regarding the impact of subscription plans and cloud games. and our slightly higher level of concern about the potential of microtransaction regulation, “Morningstar said.” We prefer Activision Blizzard given its more diversified revenues by platform, strong core franchises and potential increase in its greatest esports exposure. “
A new small-cap ETF with a buffer
A nifty video game ETF with exciting possibilities