The video game industry is poised for significant positive stimulation. This is primarily due to recently announced advancements in graphics and general processing semiconductors which will make practically every single computer sold a gaming computer. In turn, the number of people globally with the ability to play high quality games will increase, as will the probability that they become gamers. The lower cost of entry and the smaller form factors of gaming machines will also attract customers who previously did not have the budget or space for gaming hardware.
Additionally, games as a service is continuing to expand as a business model. Customers can choose from hundreds of titles for a monthly fee. These titles are primarily “catalog” titles and the resulting subscription revenue can increase monetization to the developer vs traditional means of distribution. Gamers still buy high priced new releases, but the games as a service offering often piggybacks new release consumption, and thus can improve average revenue per customer.
Cloud gaming is the ultimate expression for games as service and we will see a significant uptick in this distribution tech later this year with the release of Google Stadia. We expect the technology to get a slow start and build steam as kinks are worked out and data infrastructure is improved. The reach and flexibility for cloud gaming is nothing short of revolutionary and could increase the ranks of gamers by hundreds of millions.
The ETFMG Video Game Technology ETF (GAMR) returned -2.68% for the quarter ended June 30, 2019, which was in line with its benchmark, the EEFund Video Game Tech Index. At the sector level, GAMR’s performance was helped by holdings in Information Technology which was up 1.9% over the period. Health Care, represented by one holding, Carl Zeiss Meditec (AFX GY), was up 18.2% and was the second highest contributing sector. Sectors having negative impact were Communications Services (-3.6%) and Consumer Discretionary (-5.2%).
At the security level, positive contributors to performance were led by Nintendo (7974 JP, +28.6%), Pearl Abyss Corp (263750 KS Equity, +24.3%). Companies in the fund that detracted included GLU Mobile (-34.4%), GAMESTOP CORP-CLASS A (GME US, -46.16 %), and IGG INC (799 HK Equity, -19.54%).
Looking at fundamental factor performance for the index, factors contributing positively were allocations to Global Markets, to the software industry group and to the US. GAMR’s exposures to the style factor Size and Japanese Equities were the most significant detractors.
A closer look at the style factors revealed that the largest positive contributors to performance were Momentum, Leverage, and Growth. Contributing negatively to GAMR’s return for Q2 were exposures to Earnings Variability, Trade Activity, and Size.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477), or by visiting www.etfmg.com/GAMR. Read the prospectus carefully before investing.
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. Video Game Tech Companies face intense competition, both domestically and internationally, may have limited product lines, markets, financial resources or personnel, may have products that face rapid obsolescence, and are heavily dependent on the protection of patent and intellectual property rights. Video Game Tech Companies are also subject to increasing regulatory constraints, particularly with respect to cybersecurity and privacy. Such factors may adversely affect the profitability and value of such companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the EEFund Video Game Tech Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The EEFund Video Game Tech™ Index provides a benchmark for investors interested in tracking companies actively involved in the electronic gaming industry including the entertainment, education and simulation segments. The Index uses a market capitalization weighted allocation across the pure play and non-pure play sectors and a set weight for the conglomerate sector as well as an equal weighted allocation methodology for all components within each sector allocation. The index was created and is maintained by EEFund Management. You cannot invest directly in an index.
ETF Managers Group LLC is the investment adviser to the Fund.
The Fund is distributed by ETFMG Financial LLC. ETF Managers Group LLC and ETFMG Financial LLC are wholly owned subsidiaries of Exchange Traded Managers Group LLC (collectively, “ETFMG”). ETFMG Financial LLC is not affiliated with EEFund Management.