The video game technology market is being setup for a major global expansion. Cloud gaming is the most revolutionary distribution technology since the DVD, and not only has the potential to increase the ranks of gamers by hundreds of millions of people but allows business models that were never possible or practical. These models could include hourly charges for gaming which would allow gamers immediate access to expensive games by permitting them to demo the title. Furthermore, other trends in gaming point toward explosive growth: new VR headsets keep getting released, eSports widens its footprint, AR apps get better, and educational gaming slowly gains momentum toward a potential paradigm shift in education and training.
The ETFMG Video Game Technology ETF (GAMR) returned 13.37% for the quarter ended March 31, 2019, which was in line with its benchmark index and consistent with the rebound of the overall global technology sector.
While the vast majority of GAMR’s holdings were positive contributors to return, the one sector that stood out as a detractor to GAMR’s quarter was Consumer Discretionary, which was largely negative across the board. Consumer Discretionary companies in GAMR included Sony (-12.5%), GameStop (-16.7%) and Turtle Beach (-20.4%). GAMR’s Information Technology component (+21.8%) outperformed the overall global tech sector, while Communications Services (+14.3%) had an impressive quarter as well.
At the security level, positive contributors to performance were led by NHN Entertainment (+51.1%), Zynga Inc (+35.6%) and GLU Mobile (+35.6%). Companies in the fund that detracted included Pearl Abyss (263750 KS, -20.9%), Com2uS (078340 KS, -20.8%) and GameStop (GME, -16.7%).
Looking at fundamental factor performance for the index, factors contributing positively were allocations to global markets and the software industry group. Performance was also helped by exposures to the style factors Trade Activity and Earnings Variability. GAMR’s exposures to the Korea and Japan geographical factors as well as the style factor Size were the most significant detractors.
A closer look at the style factors revealed that the largest positive contributors to performance were Earnings Variability, Trade Activity and Growth. Contributing negatively to GAMR’s return for Q1 were exposures to Size, Dividend Yield and Momentum.
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.