I think eSports could make investors filthy rich. Here’s how I’m playing it

Esports could well be the investment theme of the decade. Paul Summers shares his thoughts on the best way to get involved.

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To say that eSports (or ‘competitive gaming’) has been growing in popularity is putting it mildly. According to the Newzoo Global eSports Market Report, revenue growth from the industry has increased by an average of 28% yearly since 2015. Thanks to the coronavirus, this purple patch looks set to continue. 

eSports: here to stay

You probably don’t need me to tell you that the lockdowns in 2020 have been hugely beneficial to raising the profile of gaming and eSports. With nowhere to go, huge swathes of people (re)discovered their inner gamer to pass the time and make new, digital contacts. If they weren’t playing themselves, they were watching other people do so via streaming service Twitch.

This rapid acceptance and adoption should mean the gaming-related boom keeps going even when the pandemic is over. It’s already been estimated that the global eSports audience will hit 495 million people in 2020.

Other developments that highlight eSports’ growing profile include the involvement of bookmakers. With no opportunities for punters to gamble on ‘traditional’ sports, firms such as William Hill have been taking bets on the outcomes of gaming matches.

Another sign of the times was the launch of talent development company Guild Esports in June. Co-owned by David Beckham, its goal is to find and nurture the next generation of professional players. While certainly not guaranteed to succeed, Beckham joins a growing list of sports stars such as Michael Jordan and Mike Tyson making investments in the video gaming industry. 

Here’s how you can join them.

How to invest

The most direct route into gaming as an investor is to buy a developer. UK-listed candidates include Codemasters, Frontier Developments and Team 17. Another option is ‘picks and shovels’ company Keywords Studios. It specialises in providing a variety of services to the video games industry. 

All of the above appear to be decent businesses with solid futures. The problem, however, is that most trade on frothy valuations due to the recent post-crash buying frenzy seen in the market.

Keywords-excluded, owning shares in a single, gaming-related company can also be risky. Much like a movie studio, a lot of money may rest on a new title living up to the hype. Should it not, some holders won’t hesitate to dump their stock.

Personally, I’m taking a different route.

My preferred pick

The VanEck Vectors Video Gaming and eSports UCITS ETF launched just over one year ago. Tracking the MVIS Global Video Gaming and eSports Index, it gives exposure to 25 companies. Importantly, all of these generate more than 50% of their revenue from the industry. Portfolio holdings include giants such as Nintendo and Tencent. Developer Activision Blizzard also features, as does Electronic Arts.

Based on performance so far, the 0.55% ongoing fee certainly doesn’t seem excessive. From inception (24 June 2019) to the end of July 2020, the fund’s net asset value climbed an astonishing 63%!

Buyer beware

Of course, no investment is a nailed-on home run. There will be setbacks along the way, perhaps in the form of increased regulation. The threat posed by cybercriminals shouldn’t be easily dismissed either. 

With a young, global, increasingly-affluent audience and new consoles (Playstation 5 and Xbox Series X) coming soon, however, the outlook for this coronavirus-proof industry looks rosy. In fact, I think gaming/esports could prove to be one of the best investment themes of the decade.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers owns shares in VanEck Vectors Video Gaming and eSports UCITS ETF. The Motley Fool UK owns shares of and has recommended Activision Blizzard. The Motley Fool UK has recommended Frontier Developments and recommends the following options: long January 2022 $75 calls on Activision Blizzard and short January 2022 $75 puts on Activision Blizzard. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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