Well, virtual reality and augmented reality didn’t work as a stand-alone exchange-traded fund, and so the sponsor of the first ETF focused on that combined theme has switched gears and repositioned their product to focus on video games.
On Monday, the Defiance Future Tech ETF (AUGR) officially changed its underlying index and name to become the Defiance Next Gen Video Gaming ETF (VIDG). The original iteration of the fund launched last August and has attracted just $3.6 million in assets.
It also has underperformed the broader market with a loss of 4.5 percent since inception. In comparison, the SPDR S&P 500 ETF (SPY) is up 6.8 percent and the Technology Select Sector SPDR Fund (XLK) is up 11.4 percent during that period.
“Augmented and virtual reality is a disruptive technology that we continue to believe in, but we feel investors will be better served by a fund that focuses on one of the key areas where this technology may have significant current impacts, which is why we’re magnifying the focus of the fund to hone in on the video game space,” said Paul Dellaquila, Defiance’s global head of ETFs, in press statement.
Video games have been hot for a long time and will likely remain so, and the ETF industry has responded in kind with several products targeting this industry. The first such product to hit the market was the ETFMG Video Game Tech ETF (GAMR), which debuted in 2016 and now has $92.6 million in assets. This fund has gained 11.6 percent year to date. And even after accounting for its 13.7 percent drop during the past one-year period, it still has returned 16.5 percent on a three-year annualized basis.
The VanEck Vectors Video Gaming and eSports ETF (ESPO) that launched last October has gathered $26.4 billion in assets and produced a year-to-date gain of 22.9 percent. It charges an expense ratio of 0.55 percent, which is significantly less that GAMR’s fee of 0.82 percent.
Even cheaper is the Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD), which charges a fee of 0.25 percent. This fund, which began trading earlier this month, targets the fast-growing esports and online gaming markets.
The refurbished Defiance Next Gen Video Gaming ETF has a price point of 0.30 percent, or 10 basis points less than what it charged in its prior incarnation. It tracks the BlueStar Next Gen Video Gaming Index composed of companies engaged in “interactive entertainment” sectors including video games, interactive media and esports streaming, video game consoles or gaming-specific personal computers, gaming-focused cloud services, social media applications with augmented or virtual reality features, mobile or wearable devices enabling virtual or augmented reality, video processing semiconductors and other semiconductors used in electronics for gaming or augmented and virtual reality, and online casinos.
Video games is the dominant subsector component at roughly 75 percent of the index.
Virtual and augmented reality are fun, but from the start it seemed like a stretch to think this concept was big enough to support an ETF devoted to that industry. The switcheroo to video games and other related subsectors will likely be a better bet.