Although the economic outlook remains uncertain, the gambling industry has come roaring back in months past. This is largely due to more hope over the health of the U.S. economy and continued growth in disposable income in many key emerging markets around the globe. Beyond these factors, some of the key gambling cities in the world have seen continued growth as well, suggesting that the worst may be over for the industry.
In fact, despite the broad concerns over the health of the Chinese market, Macao, the only city in the country where gambling is legal, has seen gambling revenues continue to surge to end 2011. Revenues rose 42% to a record of $33.48 billion ensuring that the city continues to be a Mecca for the global gaming industry. Additionally, the upstart of Singapore is expected to see double digit revenue growth as well, further cementing its spot as the second biggest gaming market on Earth despite only having two casinos which have been in operation for less than two years. Yet even for those looking closer to home, in the traditional hotspot of Nevada, news has been pretty good as well. Gambling revenue increased by 7% in November, suggesting that the growth isn’t limited to Asia alone (read Three Outperforming Active ETFs).
Even if the economy doesn’t pick up, however, casinos could see growth from the opening up of a variety of new markets which could provide casinos with fresh consumers for their resorts. State and national governments are becoming increasingly desperate for new revenues to plug budget holes and allowing the construction of casinos is a pretty easy way to boost collections. Often times, governments don’t have to spend anything they merely have to sanction the casinos, and given the broad aversion to spending cuts or tax increases this could be the way to go in the future (read Does Your Portfolio Need A Hedge Fund ETF?).
Already plans are in the works for multibillion dollar casino complexes in states such as Florida and New York, while smaller projects could be given the green light in states such as Ohio, Massachusetts, and a variety of others as well. The plans stretch beyond the U.S. too, as there are reports of new casinos in a number of Asian markets including South Korea, Japan, and a few smaller, less developed nations as well, suggesting that the coming years could see high rates of expansion for the gaming industry, even if just a fraction of these proposals go through the legislative process.
Gaming ETF In Focus
Given these trends, some investors may want to consider making a bet on the continued resurgence of the sector in 2012 and beyond. For these investors, there is one ETF available that is a good proxy for the global industry; the Market Vectors Gaming ETF (BJK - ETF report). This fund looks to track the S-Network Global Gaming Index, which is a ruled-based, modified cap-weighted, float-adjusted benchmark designed to give broad access to the global gambling industry. Currently, the fund charges investors 65 basis points a year in fees and holds 53 securities in total (read Top Three Consumer Staples ETFs).
In terms of country exposure, American firms dominate making up nearly 36.4% of total assets, by far the most for a single nation. Beyond the U.S., however, two Asian markets take the next spots with China (18.3%) and Malaysia (9.8%) rounding out the top three. Overall the exposure is pretty well spread out among countries and regions as Australia, the UK, Japan, and South Korea round out the top seven destinations. For individual securities, the most assets go towards Las Vegas Sands (LVS - Analyst Report) with 15.3% of the total while Wynn Resorts (WYNN - Analyst Report) and Genting comprise the rest of the top three, making up 7% and 6.4% of total assets, respectively.
While the winds may be ad the industry’s back, investors should note that the sector is by no means without risks. Many casinos continue to struggle under heavy debt loads thanks to a pre-recession building boom and some have not yet recovered. Additionally, BJK has a beta of 1.3 suggesting that the fund can be far more volatile than the overall market. In fact, the fund’s best three month period saw a 50% gain while the worst three month period experienced losses of nearly 45%, showing just how quickly stocks in this sector can move (see ETFs vs. ETNs: What’s The Difference?).
Nevertheless, for investors who are encouraged by the plethora of casinos that could be opening up soon as well as strong revenue numbers from some of the top gaming destinations of the world, this could be an intriguing time to buy. The P/E of the fund is just 12.5 while the Price to Sales is 1.8, suggesting there could be some decent values in many of the securities in the fund. Add in a solid yield of over 2% and some risk-tolerant investors could hit the jackpot with this Van Eck ETF (read A Primer On ETF Investing).
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Author is long LVS.