Mark Zuckerberg’s attempt to strategically pivot Facebook into what is now known as Meta Platforms Inc. (ticker: META)may have flopped and fallen short of expectations so far, but that doesn’t necessarily spell doom for the overall concept of the metaverse.
For many enthusiasts and investors alike, the idea of a virtual, interconnected universe seems ideal as the next frontier, and a natural evolution for existing internet, virtual reality, augmented reality, gaming and social media platforms.
“The term ‘metaverse’ broadly refers to the idea of a digitally interconnected, interactive and immersive universe where people can communicate, interact and socialize via the internet,” says Marco Manoppo, research director and team lead at Digital Asset Research.
The metaverse sits at the intersection of numerous different technologies and objectives. For the former, developments in VR, AR and blockchain technology could benefit from increased use cases and demand. For the latter, the metaverse could offer a new avenue for legacy businesses like e-commerce, advertising, virtual goods, gaming and content creation.
“We define the metaverse as the next iteration of the internet,” says Dina Ting, senior vice president and head of global index portfolio management at Franklin Templeton. “In other words, it’s the successor to today’s connectivity and communications methods via shared virtual and mixed-reality spaces that are three-dimensional, decentralized and interactive.”
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Although still in its infancy, the metaverse’s prospects are inextricably linked to the overall pace of digitization.
“Metaverse growth is underpinned by the macro thesis that people are increasingly spending more time online, especially in emerging markets,” Manoppo says. “As a result, the means by which people socialize, consume and transact will increasingly become more digital.”
Other experts are bullish on the overall level of anticipated growth.
“The metaverse represents a multitrillion-dollar, multi-decade opportunity for investors,” Ting says. “The total addressable market could reach up to an estimated 5 billion users, or nearly 63% of the global population, with some analysts forecasting revenue generation of between $8 trillion and $13 trillion by 2030.”
To participate in the growth of the metaverse with greater diversification, investors can buy dedicated exchange-traded funds, or ETFs, with a thematic focus. “This can benefit the average investor by taking the guesswork out of company selection and ensuring optimal metaverse exposure,” Ting says.
Manoppo agrees, noting: “The pros of using a thematic ETF for metaverse investing include broader exposure to a diversified basket of companies and more limited single-stock risk.”
Here’s a look at six of the best ETFs offering pure-play metaverse exposure in 2023:
|Metaverse ETF||Expense Ratio|
|Fount Metaverse ETF (ticker: MTVR)||0.7%|
|Roundhill Ball Metaverse ETF (METV)||0.59%|
|Global X Metaverse ETF (VR)||0.5%|
|First Trust Indxx Metaverse ETF (ARVR)||0.7%|
|ProShares Metaverse ETF (VERS)||0.58%|
|Wedbush ETFMG Video Game Tech ETF (GAMR)||0.75%|
Fount Metaverse ETF (MTVR)
“The term metaverse can often cross industries, ranging from video games, blockchain, VR/AR and computer graphics technologies,” Manoppo says. “Therefore, investors need to understand which verticals they’re buying when selecting a metaverse ETF. An option here is MTVR, which holds 51 market-cap weighted metaverse-related companies.
MTVR tracks the Fount Metaverse Index, which screens stocks based on size and liquidity, a set of metaverse-related keywords and revenue that at least 50% derives from metaverse-related services or products. The index is rebalanced and reconstituted annually, with the ETF charging a 0.7% expense ratio, or $70 annually for a $10,000 investment.
MTVR’s largest holdings currently include Apple Inc. (AAPL), Meta Platforms and Alphabet Inc. (GOOGL). Gaming companies like Roblox Corp. (RBLX) are also featured. The ETF is globally diversified, but highly concentrated in the technology sector given the nature of its holdings. Investors should also know that its net assets are quite low at just over $5 million, and the ETF is thinly traded, with average volume less than 3,000 shares per day.
Roundhill Ball Metaverse ETF (METV)
METV tracks the Ball Metaverse Index, which divides its underlying holdings into five metaverse-related themes: computing components, gaming platforms, cloud solutions, social networking and other. Due to the high proportion of technology companies in the U.S., 76.3% of the ETF’s 50 underlying companies are domestic based, with China, South Korea and Japan being the next largest markets.
The dominance of U.S. tech giants in this ETF also means that METV has a large-cap focus, with 95% of its portfolio having a market capitalization of more than $10 billion. Notable top holdings in this ETF include Nvidia Corp. (NVDA), Apple, Roblox, Meta and Microsoft Corp. (MSFT). METV currently charges a 0.59% expense ratio and has an options chain available.
Global X Metaverse ETF (VR)
VR takes an unconstrained approach to metaverse investing by targeting the Global X Metaverse Index. This index holds companies regardless of sector or geographical categorization, as long as they are positioned to benefit from metaverse growth and commercialization.
VR’s 41 holdings therefore span a broad range of industries, including social media, cloud computing, 5G infrastructure, digital payments, semiconductors, blockchain and software. Again, large-cap U.S. tech stocks like Nvidia, Meta, Microsoft and Coinbase Global Inc. (COIN) hold high weightings.
However, VR does have a greater ex-U.S. focus, with international stocks like Tencent Holdings Ltd. (0700.HK), Nexon Co. Ltd. (3659.T) and Nintendo Co. Ltd. (7974.T) also holding spots in the top 10. The ETF charges a 0.5% expense ratio. Liquidity is an issue, though: the fund has net assets of less than $3 million and average trading volume of less than 500 shares per day.
First Trust Indxx Metaverse ETF (ARVR)
ARVR takes a stringent approach to selecting metaverse-related stocks. Its underlying index, the Indxx Metaverse Index, sets out a strict set of criteria that potential holdings must meet. Companies eligible must have at least 50% of their revenues or assets derived from the internet; online platforms; payments; optics and displays; semiconductors; hardware or 5G.
As a result of these screens, ARVR ends up with a concentrated portfolio of 50 stocks, with companies below $10 billion in market cap having their weight halved and distributed evenly among the ETF’s overall portfolio to ensure better coverage. Notable holdings include Sony Group Corp. (6758.T), Nvidia, Nexon, Nintendo and Apple. ARVR charges a 0.7% expense ratio. Investors should also be aware that ARVR is tiny for an ETF, with net assets of less than $2 million and average daily volume of just over 1,000 shares.
[READ: 10 Best Tech Stocks to Buy for 2023]
ProShares Metaverse ETF (VERS)
VERS tracks the Solactive Metaverse Theme Index, which is designed to be representative of a broad range of 40 companies involved in all facets of the metaverse. Again, the top holdings include the usual assortment of large-cap U.S. tech companies like Nvidia, Apple, Meta, Microsoft and Alphabet. In total, U.S. stocks make up around 85% of this ETF.
In terms of industry exposure, VERS is concentrated in three main areas: software and services at 21%, media and entertainment at 25%, and semiconductors at 24%. This gives it broad exposure to multiple points in the metaverse ecosystem, whether in terms of the software running it, the services provided in it, or the hardware supporting it. VERS charges a 0.58% expense ratio.
VERS, like many previous ETFs mentioned, is still small, with net assets of about $6.5 million and average daily trading volume of less than 1,100 shares.
Wedbush ETFMG Video Game Tech ETF (GAMR)
A natural progression for the metaverse is integration into existing video games. “Currently, gaming IPs such as Fortnite and Roblox are already becoming a prototype metaverse for young people to socialize in,” Manoppo says. An ETF equipped to capitalize further on this trend is GAMR, which tracks the EE Fund Video Game Tech Index.
“To flourish, a metaverse will need a lot of content, most important of which will be games,” says Ted Pollak, president and portfolio manager at EE Fund Management LLC . “It will also need servers to run the massive workload needed for billions of users, along with client visualization and input products such as controllers, displays and headsets.”
GAMR is well constructed to provide exposure to a portfolio of video game industry companies, many of which already operate their own massively online multiplayer worlds. The ETF holds notable companies like Paris-based Ubisoft Entertainment SA (UBI.PA), Electronic Arts Inc. (EA) and Activision Blizzard Inc. (ATVI) for a 0.75% expense ratio.
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6 of the Best Metaverse ETFs to Buy in 2023 originally appeared on usnews.com