Facebook’s name change to Meta in late October 2021 caught many investors by surprise, but to industry insiders, the metaverse was always inevitable. While the hardware isn’t quite mainstream, virtual real estate is already capturing billions of dollars, and large companies are embracing the next iteration of the internet.
Let’s take a look at how investors can gain exposure to these new markets through exchange-traded funds (ETFs).
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What Is the Metaverse?
The metaverse refers to virtual world environments where people can interact. For example, Facebook aims to launch a metaverse product enabling businesses to hold meetings in a virtual environment. The goal is to help people connect on a deeper level when working remotely—a trend that has sharply increased since the COVID-19 pandemic began.
While Minecraft was the first metaverse game, the market has grown to include thousands of metaverse titles today. In November, a patch of virtual real estate in the online world, Decentraland, sold for $2.4 million worth of cryptocurrency, setting a new record. Meanwhile, characters regularly sell for thousands of dollars.
ARK Research believes that revenue from virtual worlds could approach $400 billion by 2025. Meanwhile, Bloomberg Intelligence is even more bullish, saying that the market opportunity could reach $800 billion by 2024. If Facebook’s rebranding is any indication, these estimates could be closer to the mark than past over-hyped technologies.
Roundhill Ball Metaverse ETF (META)
The Roundhill Ball Metaverse ETF (META) offers investors exposure to 40 global companies actively involved in the metaverse. With $848 million in assets under management, it’s the largest and most popular metaverse ETF and holds many large and recognizable companies.
The fund invests in seven key categories that enable the metaverse, including gaming platforms, computing components, cloud solutions, and social networks. The fund weights these companies in tiers based on probable future revenue share from metaverse economic activities, grouping them into pure-plays, core, and non-core tiers.
The five largest holdings include:
- NVIDIA Corporation (NVDA) – 10.62%
- Roblox Corp. (RBLX) – 8.57%
- Microsoft Corp. (MSFT) – 7.70%
- Meta Platforms Inc. (FB) – 6.62%
- Unity Software Inc. (U) – 4.86%
META comes with an expense ratio of 0.75% and has nearly $875 million in assets.
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Fount Metaverse ETF (MTVR)
The Fount Metaverse ETF (MTVR) provides exposure to a portfolio of 50 global companies capitalizing on the metaverse. While it has just $13 million in assets under management, the fund only recently launched on October 27, 2021—three months after the META ETF.
The fund identifies companies likely to engage in the four components of the metaverse. Then, it uses an artificial intelligence algorithm to forecast revenue from metaverse products or services. Finally, the components are weighted based on their metaverse-related revenue, with companies deriving less than half of their revenue from the metaverse excluded.
The five largest holdings include:
- Apple Inc. (AAPL) – 14.55%
- Meta Platforms Inc. (FB) – 6.51%
- Alphabet Inc. (GOOG) – 5.67%
- Peralabyss Corp. – 2.49%
- Walt Disney Co. (DIS) – 2.37%
META comes with an expense ratio of 0.7% and has nearly $13 million in assets.
First Trust Files to List New ETF
The First Trust Indxx Metaverse ETF will expose investors to the common stocks and depositary receipts of companies involved in the metaverse. While the fund hasn’t launched yet, the company indicated it would include companies that develop content, software, hardware, and ancillary products (e.g., semiconductors) to the industry.
The Bottom Line
While Horizons and Evolve have already launched active ETFs focused on the metaverse space in Canada, aka Global Metaverse Index ETF (TSX:MTAV) and Evolve Metaverse ETF (TSX: MESH), U.S.-based investors are yet to see an active ETF play in this realm.
The metaverse is quickly becoming a reality with a growing number of companies developing products and a healthy ecosystem emerging with non-fungible tokens (NFTs) and virtual real estate. Investors interested in capitalizing on these trends might want to watch out upcoming active ETFs that provide unique, hands-off exposure to the market at a relatively low cost.
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