But what sets the NERD ETF apart is that it is much more focused on the esports aspect of gaming and not just the makers of popular video games and consoles.
Hershey said his firm’s ETF is based on an index that Roundhill created. It’s a rules-based index that scans regulatory filings for keywords like “esports,” “video games” and “competitive gaming.” Roundhill then uses these findings to determine how much exposure the companies have to the esports business and weights the stocks accordingly in the ETF.
“We focus on thematic products targeted to the next generation of investors — and there is excitement about esports. [New England Patriots owner] Bob Kraft even bought into the Overwatch League with the Boston Uprising. We want companies that live and die on esports,” Hershey said.
Betting big on Asia
Hershey said that because of Chinese restrictions on media companies that operate in the West, DouYu and Huya face little competition from Twitch, YouTube and Mixer.
Hershey said investors only looking at the US as a top esports market are missing the bigger picture.
“There are kids growing up in South Korea for the past 20 years who have wanted to be professional gamers. It’s only been cool in the US for the past year or two with Fortnite,” he said.
Don’t rule out hardware and chips just yet
But the manager behind VanEck’s rival gaming and esports ETF said that investors need to look more at hardware as well as software and streaming.
Edward Lopez, head of ETF product for VanEck, said his firm’s fund is based on an index that looks for companies that have at least 50% of their sales coming from esports and video games.
“These companies are all part of the video gaming ecosystem even though they are not big in esports,” Lopez said.
The VanEck strategy is paying off more handsomely so far. It has outperformed the NERD ETF since NERD debuted in June. And it’s done better than the other two pure play gaming ETFs as well.
Still, Lopez agrees with Hershey about the potential for gaming and esports to get even bigger though. So multiple companies and funds could thrive.
“Gaming is benefiting from cord cutting — not just with millennials but an even younger demographic,” Lopez said. “This is a serious business and not just child’s play.”