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eSports ETF Race: ESPO vs NERD

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The eSports industry is on a tear of late as very few ways of entertainment are as popular as video games. The video game industry is disrupting traditional media and entertainment,” per VanEck. Per, the video gaming market of $138 billion in 2018 is expected to grow at an estimated 10% per year till 2021.  

Notably, eSports is a form of video game competition in front of an audience. There are 454 million eSports viewers globally, which is estimated to rise to 645 million by 2022, per Newzoo 2019 Global Esports Market Report. More people prefer watching video games over Netflix, HBO, ESPN, and Hulu combined, if we go by the data provided by 2017 Superdata Gaming Video Content.

While eSports is currently a small part of the huge video-game industry, it is growing exponentially. Agreed, most gamers play video games as a hobby, but professional gamers also participate in international tournaments which involve sponsorships and huge prize money.

Goldman estimates the monthly competitive eSports gamer count of 167 million as of 2018-end to hit 276 million by 2022. The forecast was based on a NewZoo survey. Market researcher Newzoo expects the game industry to generate about $148 billion in revenues in 2019. In 2018, about $4.5 billion was invested in eSports via private markets, according to Rise of Esports Investments.

Naturally, to tap this burgeoning potential, VanEck Vectors Video Gaming and eSports ETF (ESPO - Free Report) made its debut last October. And Roundhill Investments, a recently-launched ETF sponsor, announced the launch of the firm’s first fund, the Roundhill BITKRAFT Esports & Digital Entertainment ETF NERD this month (read: Capture the eSports Craze with this ETF).

Inside NERD

The fund looks to offer retail and institutional investors an exposure to eSports & digital entertainment by providing investment results to the performance of the Roundhill BITKRAFT Esports Index. There are 25 stocks in the fund and it charges 25 bps in fees.

Afreecatv Co (7.92%), SEA Ltd (7.69%) and Activision Blizzard (6.17%) are the three top holdings of the fund. United States takes the top spot (20.9%) followed by China (16%), South Korea (13.2%) and Japan (12.0%). The fund is a multi-cap one with large-caps taking 53.5% of the portfolio, followed by small-cap (25.7%). The fund charges a net expense ratio of 25 bps.

Inside ESPO

The underlying MVIS Global Video Gaming and eSports Index intends to track the overall performance of companies involved in video game development, eSports, and related hardware and software. It also holds 25 stocks and charges 55 bps in fees (net). Nvidia Corp (8.40%), Tencent Holdings (7.55%) and Activision Blizzard (6.99%) are the top three stocks of the fund.

United States (35.40%), Japan (22.26%), China (14.79%) and South Korea (11.44%) hold the top four spots in the fund. Communications (77.1%), Information Technology (18.5%) and Consumer Discretionary (4.4%) are the top three stocks of the fund. ESPO is up 19.9% this year versus 12.7% gain of the S&P 500.

Which Will Win?

While both the funds are more-or-less similar in terms of diversification, NERD may gain a lead in the coming days as it charges much lesser than ESPO.

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