Esports ETF creator breaks down the current state of the industry
It’s been a big year for esports.
Between record multimillion-dollar prize pools in Fortnite and Defense of the Ancients 2 (Dota 2) as well as research firm Newzoo’s prediction that the industry will exceed $1 billion in revenue this year, the esports hype is well and alive.
Will Hershey, co-founder and CEO of Roundhill Investments, launched the Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD) in June to give investors a way to play the esports space, especially as it continues its global expansion. Esports has historically thrived in Asia, with China and South Korea as two big regions for the industry, but the North American market has exploded in recent years.
Now NERD may not have been the first esports ETF on the market – that honor goes to VanEck’s Video Gaming and Esports ETF (ESPO) -- but Hershey emphasizes that NERD seeks to give investors a more pure exposure to the esports market.
“What we’re trying to do [is] provide people that core exposure, and maybe not go outside the risk curve and look at things like Microsoft and Amazon that really aren’t getting you what we’re talking about,” he said on CNBC’s “ETF Edge.”
So while an ETF like ESPO offers exposure to a plethora of game publishers, NERD’s holdings feature the likes of media-related companies like Chinese streaming platform Douyu and hardware companies like Turtle Beach in addition to a handful of major game publishers. Over half of the 25 companies held in the ETF are from Asia including Tencent, whose ownership of major esports-related companies like Riot Games leads Hershey to describe it as “a mini gaming ETF” in and of itself.
And on the subject of Tencent, Hershey also points out that there could be one risk factor coming out of China.
“I think if you’re going to point out risk factors [for esports], I’d more look towards the regulatory environment we’ve seen in China,” he said. “We saw [regulation in 2017 and in 2018] where we actually had a ban on new games coming to market. That’s kind of one of those ancillary risks that we would point to.”
But Hershey also stresses the global nature of the NERD portfolio in mitigating possible headwinds. And despite past regulations in China, which is a major market for gaming, Hershey points out that the gaming industry is still growing at a rapid pace.
“For us, it always comes back to the data,” said Hershey. “You’re talking about a gaming industry that’s $150 billion this year, growing at about 10% per year. That’s larger than the music and movie industries combined.”
“I think it’s only a matter of time before those larger investors start catching wind of how big this industry is,” he added.
Since it launched on June 4, the NERD ETF is up over 1%.