2021 Game Tech Industry Review

The video game industry flourished in 2021, despite new headwinds created by the pandemic. Supply chain issues and the crypto trend made acquiring equipment such as hardware difficult and expensive. Regardless, millions of new gamers adopted the hobby with the use of either their mobile devices, cloud gaming services, secondary market hardware, and when they could get it…new equipment. We believe 2021’s supply chain complications created burgeoning, pent-up demand for game tech hardware and software.

Although some credit the pandemic for sparking phenomenal growth in game tech, our analysis shows that a large portion of this growth was inevitable irrespective of the pandemic. Why? Because of the one underlying factor that truly propels the video game industry: people like to interact. We like to become part of the story, become the star of the show, and to be immersed in a community environment. We like to test our intelligence, tactics, strategy, reactions, and instincts. This can’t fully be accomplished via movies or TV series. It transcends entertainment and enters a realm of interaction.

Nearing the end of 2021, several notable trends established additional tailwinds for the video game tech market. The most notable being that Facebook changed its name to Meta, reflecting their aspirations for creating a metaverse. A metaverse is essentially a large game engine that people can use for many different purposes—gaming, education, remote collaboration, searching, shopping and other commerce. Metaverses are often experienced using (but not required to be used with) virtual reality. When Facebook acquired Oculus there was significant criticism about the viability of virtual reality (VR) and whether the division would persist; however, Facebook’s rebranding shows us that they are secure in establishing the metaverse.

VR is now the game tech to watch in the immediate future, as it is one of the precursors to a large-scale metaverses viability. Illustrated in this modification of the Gartner Hype Cycle, VR’s evolution was stunted by a significant crash from inflated expectations, survived the trough of disillusionment, and is poised for potential long term, fundamentally driven growth.

Gartner Hype Cycle For informational purposes only.

EE Fund Video Game Tech Index

Ten best performing securities based on index roster 12/31/21

Source: Prime/Level ETF. *Holdings are subject to change without notice. Past Performance Does Not Guarantee Future Results.

The EE Fund Video Game Tech Index (which drives the NYSE listed Wedbush ETFMG Video Game Tech ETF; Ticker: GAMR) attempts to capture the entire game tech industry with filters for market cap, liquidity, revenue, and other parameters. Thus, the number of holdings—currently 112*—is significant. As an active manager with my other investment services, creating and using a passive product was a shift, primarily due to the forced inclusion and rebalancing of companies with possibly weak fundamentals, those that are not commonly known, and those with occluded transparency of operations and financials due to international differences in accounting standards and of course languages.

However, the EE Fund Video Game Tech Index has performed admirably so far. In reality, the passive approach can capture unexpected movements in the indexes underlying securities. It is interesting to note the top 2021 winners and losers as applied to the total year end index roster.

Evidently, there are names in each list that one might not expect to be included; thus, the rationale for a passive approach to capturing the performance of the target industry has proven to be successful.

Ten worst performing securities of 2021 based on index roster 12/31/21

Source: Prime/Level ETF. *Holdings are subject to change without notice. Past Performance Does Not Guarantee Future Results.

2022 Video Game Industry Predictions

Looking forward there is a lot to be optimistic about. For instance, if and when the supply chain problems resolve we could see the unleashing of pent-up demand for game tech hardware, which in turn could stimulate software, especially if the customer is a new entrant. Cloud services continue to be a potential paradigm shift in distribution. Mobile phones increase in power and efficiency which entices people to use the devices for gaming applications. Virtual reality looks poised to fundamentally grow, and hit sales records over the holidays, with augmented reality waiting in the wings. Console and PC gaming stands fast and offers incredible flexibility in performance based on what the customer wants to pay and play. Educational and training is being gamified at a reasonable pace with potential metaverses on the horizon!

For more information on GAMR, visit: etfmg.com/GAMR.

As of 1/24/22, GAMR held 1.42% in WeMade Co. Ltd, 1.04% in Gamestop Corp., 0.45% in Com2uS Holdings Corp., 0.31% in WYSIWYG Studios Co. Ltd., 0.35% in Afreeca TV Co Ltd., 0.64% in HTC, 1.69% in Pearlabyss Corp., 0.45% in Nat Games Co. Ltd., 0.55% in Nvidia Corp., 0.64% in Nordic Semiconductor ASA, 2.24% in Ubisoft Entertainment, 1.12% in Bilibili Inc-Sponsored ADR, 1.73% in Stillfront Group Ab, 0.18% in VK Co. Ltd., 0.58% in Archosaur Games Inc., 0.30% in Gravity Co. Ltd., 1.05% in Skillz Inc., 0.41% in Huya Inc-ADR, 0.39% in Enad Global 7 Ab and 0.34% in Douyu International Holdings Ltd.  Holdings are subject to change without notice.

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. Securities mentioned may or may not be current holdings in the Fund and are subject to change without notice

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.

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 is not affiliated with EEFund Management or Wedbush Securities LLC.

The Fund is intended to be made available only to U.S. residents. Under no circumstances is any information provided on this website intended for distribution to or use by, or to be an offer to sell to or solicitation of an offer to buy the Fund or any investment product or service of, any person or entity in any jurisdiction or country, other than the United States, where such distribution, use, offer or solicitation would subject the Fund or its affiliates to any registration requirement or be unlawful under the securities laws of that jurisdiction or country.

Author Portrait
Ted Pollak is the Founder and President of EE Fund Management LLC. The Company was formed in 2004 to act as a general investment manager (a California Registered Investment Advisor) and also to manage The Electronic Entertainment Fund LP (a Delaware sector focused investment partnership). Mr. Pollak also created EEndex (the world’s first video game industry equity index) and the EE Fund Video Game Tech Index (an ETF optimized video game industry equity index). Additionally, Pollak is a Senior Gaming Industry Analyst for Jon Peddie Research, a Tiburon California based market research and consulting firm and is an Entertainment Technology Expert for the Gerson Lehrman Group Council, an independent primary research firm serving business and investment leaders in North America, Asia and Europe.

Pollak has been in the financial products and services industry for 21 years, and has worked in operational and financial management, equity trading, relationship management, marketing, and investment system operations at various firms including Wells Capital Management, SDR Capital Management, Osborne Partners, and Robert W. Baird. Mr. Pollak also has experience from Hambrecht & Quist and other investment industry companies.

Mr. Pollak holds a degree in history and business from CSUC and an Eastern Michigan University overseas program spanning 15 countries. He holds the NASD Series 65 License, and has passed the NASD Series 7, NASD Series 63, and CFA Level I exams.