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5 ETFs to Cash in on Microsoft-Activision Deal

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The world's largest software maker — Microsoft (MSFT - Free Report) — has agreed to buy gaming giant Activision Blizzard for $68.7 billion. It will be the largest-ever merger in the tech space, eclipsing Dell's (DELL - Free Report) purchase of EMC for $60 billion in September 2016.

Following the news, shares of ORCL dropped 2.4% on the day. The stock crushed its average volume as 42.4 million shares moved hands compared with 28.1 million, on average. Meanwhile, shares of ATVI jumped 25.9%.

This put the spotlight on some ETFs, which could be the best ways for investors to tap the opportunity arising from the proposed Microsoft-Activision deal. Investors should keep a close eye on the movement of these ETFs — Select Sector SPDR Technology ETF (XLK - Free Report) , iShares Dow Jones US Technology ETF (IYW - Free Report) , Vanguard Information Technology ETF (VGT - Free Report) , MSCI Information Technology Index ETF (FTEC - Free Report) and iShares Global Tech ETF (IXN - Free Report) — over the coming weeks.

Deal in Focus

Per the terms of the deal, Microsoft will acquire Activision Blizzard for $95.00 per share, in an all-cash transaction. If the deal closes, it will be Microsoft's largest acquisition ever, topping its purchase of LinkedIn for $26.2 billion in December 2016.

The deal will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will play a key role in developing metaverse platforms. It will provide the software giant access to iconic franchises like Warcraft, Diablo, Overwatch, Call of Duty, and Candy Crush. Microsoft will add many of Activision’s games to Xbox Game Pass and PC Game Pass (read: Apple Hits $3T Market Cap for The First Time: ETFs to Buy).

Game Pass has reached a new milestone of over 25 million subscribers. With Activision Blizzard’s nearly 400 million monthly active players in 190 countries and three billion-dollar franchises, this acquisition will make Game Pass one of the most compelling and diverse lineups of gaming content in the industry. Upon closing the transaction, Microsoft will have 30 internal game development studios, along with additional publishing and esports production capabilities.

The acquisition, expected to close in fiscal 2023, will be accretive to non-GAAP earnings per share after the deal closes. The transaction has been approved by the boards of directors of both Microsoft and Activision Blizzard but is subject to Activision Blizzard’s shareholder approval and regulatory approvals.

The news has opened the doors for another consolidation within the gaming industry and a massive bet on the future of the metaverse.

ETFs in Focus

Let’s delve into each ETF below:

Select Sector SPDR Technology ETF (XLK - Free Report)

Select Sector SPDR Technology ETF is the most popular and liquid ETFs in the technology space with AUM of $49.3 billion and an average daily volume of 11.5 million shares. It offers broad exposure to the technology sector and follows the Technology Select Sector Index. Select Sector SPDR Technology ETF holds about 76 securities in its basket, with Microsoft occupying the second position at 20.7%.

Select Sector SPDR Technology ETF charges 12 bps in fees per year from investors and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Cheap ETFs to Play Amid Tech Stocks' Worst Start Since 2016).

iShares Dow Jones US Technology ETF (IYW - Free Report)

iShares Dow Jones US Technology ETF provides exposure to U.S. electronics, computer software and hardware, and informational technology companies. It tracks the Dow Jones U.S. Technology Capped Index, holding 154 securities in its basket. Of these, Microsoft occupies the second position in the basket with 16% of the assets.

iShares Dow Jones US Technology ETF has AUM of $9.1 billion and charges 41 bps in fees and expenses. Volume is good as it exchanges nearly 640,000 shares a day. IYW has a Zacks ETF Rank #1 with a Medium risk outlook.

Vanguard Information Technology ETF (VGT - Free Report)

Vanguard Information Technology ETF manages about $53.1 billion in its asset base and provides exposure to 362 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the second position with a 17.6% share.

Vanguard Information Technology ETF has 0.10% in expense ratio, while volume is solid at nearly 636,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.

MSCI Information Technology Index ETF (FTEC - Free Report)

MSCI Information Technology Index ETF is home to 368 technology stocks with AUM of $6.9 billion. It follows the MSCI USA IMI Information Technology Index. Microsoft is the second firm with a 17.6% allocation.

MSCI Information Technology Index ETF has 0.08% in expense ratio, while volume is solid at 297,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook (read: 5 ETFs Making the Most of the Tech Rebound).

iShares Global Tech ETF (IXN - Free Report)

iShares Global Tech ETF provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology Sector Index. Holding 132 stocks in its basket, Microsoft occupies the second spot with 16.6% share.

iShares Global Tech ETF has amassed $5.7 billion in its asset base and trades in a good volume of 312,000 shares a day, on average. The expense ratio is 0.43%.

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