Metaverse ETF Boom Likely To Persist Despite Performance Woes

ETF providers have bought into the potential of the metaverse at an unprecedented pace, industry watchers said, even though the digital worlds are still in their early days. 

Nearly three dozen — 35 in all — metaverse-themed ETFs have hit the market globally since June 2021, according to Morningstar data, more than funds in any other sector. 

The emerging investment products have dwarfed other similar, hot segments, including blockchain and cloud computing ETFs, which booked 20 and 13 vehicles, respectively, over the past two years. Twelve battery technology ETFs and 11 internet ETFs launched during the same span.   

“The metaverse is the most interesting, to me, of the themes or sub-themes we’ve seen, because it has emerged so quickly,” Morningstar Research Analyst Kenneth Lamont told Blockworks.

The first metaverse fund in the US — the Roundhill Ball Metaverse ETF (METV) — started trading in June 2021. The ETF benefitted from a “first-mover advantage,” industry participants said, and now has roughly $400 million in assets under management. While several metaverse ETFs in Asia have more than $100 million in assets, competing funds in the US have been stuck around $10 million or less.

Facebook moved in October 2021 to change its corporate name to Meta, bringing more awareness to the metaverse, in general. JPMorgan analysts said earlier this year that the metaverse has a market opportunity of $1 trillion in yearly revenue as creators increasingly turn to Web3 to monetize their work.

In the first few months of 2022, Subversive Capital, Global X, ProShares and Fidelity Investments launched metaverse ETFs. SoFi debuted a fund focused on NFTs, blockchain tech and the metaverse in August, and BlackRock’s iShares filed for a Future Metaverse Tech and Communications ETF the following month.

“I don’t think any other themes come even close to the kind of excitement we have seen about the metaverse in terms of launches,” said Neena Mishra, director of ETF research at Zacks Investment Research.

Metaverse ETFs holdings and performance

METV’s top holdings, Nvidia and Apple, each accounted for roughly 8% of the ETF as of Monday. Its other biggest bets include Roblox, Microsoft and Meta.

Lesser-known names in the top 10 group of holdings include China-based entertainment conglomerate Tencent Holdings, semiconductor company Qualcomm, and software company Autodesk. 

Despite the Roundhill fund’s rough performance in 2022 — the ETF is down roughly 53% year to date — METV’s net outflows this year total just $45 million, according to Mishra.

Overall, global metaverse ETFs, which had their monthly net inflows peak at more than $1.3 billion in November 2021, have seen monthly net outflows in the six months from May to October, Morningstar data show. The funds marked its highest net outflows, about $47 million, in June and about $18 million in October. November’s numbers were not available as of publication. 

“The problem is all these [metaverse-related] stocks will continue to struggle if the Fed continues to raise rates,” she told Blockworks. “But I don’t expect investors to give up completely on the theme.”

The Federal Reserve rose interest rates by half of a percentage point last week, putting an end to its streak of 75 basis point rate increases that began in June. 

“We could see a recovery in growth stocks in the second half of the year, and then probably will see some recovery in these ETFs as far as asset gathering and performance is concerned,” Mishra added.

An evolving segment

Mishra and Lamont said they expect to see more metaverse ETF launches in 2023. Like most niche categories, not all that launch will gather significant assets and survive — but plenty likely will.

“One of the reasons thematic funds are so attractive to asset managers is that actually you can have 10 metaverse ETFs and they define what constitutes a metaverse stock differently,” Lamont said. “So there is room if it’s a big enough theme for multiple funds tracking the same theme.”

Akin to the Roundhill Ball Metaverse ETF, The ProShares Metaverse ETF (VERS) has tech giants Meta, Microsoft, Apple and Alphabet near the top of its holdings list. Other top 10 positions include Adobe, Accenture and Vuzix. 

The Fidelity Metaverse ETF (FMET) weights Tencent Holdings most heavily and further differentiates from other competing funds by including Nintendo, Electronic Arts, NetEase and Dassault Systemes in its top 10 holdings.   

VERS and FMET are down about 34% and 19%, respectively, in 2022.

Mishra called online game platform Roblox the only “pure-play” metaverse stock right now. There will be more room for further differentiation between the ETFs as the universe of metaverse-related stocks expands beyond just the largest tech companies exploring the space, she and Lamont said.

“If you speak to some of the providers, many of them will say yes, some of these stocks we are buying for the metaverse, maybe it’s not for today but for tomorrow and you’re just getting in early now,” Lamont said. “We’re putting you in a position where you would benefit from the growth of this concept and idea.”

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