Investing in Video Games

The recently launched FactorShares Trust PureFunds Video Game Tech ETF opens a new avenue for investing in mobile game development companies.

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Video games have changed a lot in the last several years, and the market has evolved to reflect this transition. No longer are video games relegated to dingy basements or mall arcades; today, they are works of art that generate huge enthusiasm across all demographics.

Savvy mobile game development companies and private investors have recognized the shift, and are investing heavily in this market. The FactorShares Trust PureFunds Video Game Tech ETF (ARCA:GAMR) is the world’s first ETF focused on the video game industry. The ETF covers the top mobile game development companies on the market today, and with the overall video game market set to reach $100 billion in the next couple of years, investors should definitely take note.

Growing market for video games: Downgraded but still hot

Research from 2015 expected the market to pass the $100-billion mark by 2017, reaching an anticipated $102.9 billion. According to Statista’s research, the value of the global video games market will reach $78.61 billion in 2017 and up to $86.29 billion by 2019, a downgrade from the previous statistics. 

So what factors are driving this video game growth, however reduced? Mostly it comes down to growth regions and growing mediums. With ever-increasing game revenues, China is set to beat out the US to become the largest video game market in the world for the first time in history. Meanwhile, the adoption of smartphones is also driving mobile gaming and therefore the success and popularity of video games.

How to invest

As can be seen, significant, if tentative, growth is occurring in the video game space and as a result there’s a lot of diversity in the quality of video game companies. That is making it difficult for investors to differentiate between investments that will stand the test of time, and those that will fizzle.

The PureFunds Video Game Tech ETF eliminates that issue by tracking the EEFund Video Game Tech index, as well as a variety of companies in the market. Its top holding is Konami (TYO:9766), a Japanese entertainment company, a distributor of anime, arcade cabinets, slot machines and trading cards. South Korean video game company Nexon (TYO:3659) is the ETF’s second-largest holding. CAPCOM (TYO:9697), Ncsoft (KRX:036570) and Activision Blizzard (NASDAQ:ATVI), major developer and publisher of online, PC, video game console, handheld, mobile and tablet games, round out the ETF’s top five holdings.

It’s worth noting that the majority of companies included in the ETF have significant market caps, revealing a trend in the mobile gaming market: companies are either well-established, large-cap businesses, or small private companies for which acquisition is more likely than an IPO. This trend emerges from the startup culture surrounding the app market — since these mobile gaming platforms need little in the way of initial overhead, many smaller companies choose not to involve investors.

Small cap companies, like Gaming Nation Inc. (TSXV:FAN), are a notable exception. Gaming Nation aim to bring the strongest and best recognized online gaming brands together in one portfolio, via an aggressive acquisition strategy. For instance, in December the company announced that it acquired BD Sport Group, the market leader for stadium betting services in the UK, and expected to close in March 2017. Shares of Gaming Nation are currently trading at $0.425 per share.

For investors, the key takeaway here is that while it’s possible to invest in small cap video game companies, it can be difficult to gain a toehold in smaller companies in the space. However, those that don’t mind focusing on the larger players certainly have options, with the PureFunds Video Game Tech ETF being one of them.

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This is an updated version of an article first published on March 10, 2016 on Technology Investing News. 

Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.

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