The Harvest Sports & Entertainment Index ETF debuted on Nov. 5, offering exposure to areas as diverse as gambling websites, video games, running shoes, ticket agencies and big-league sports teams. The fund joins the two-year-old Evolve E-Gaming Index ETF in aiming to profit from popular pastimes.
Both ETFs track thematic indexes. Harvest invests in the 40 names that constitute the Solactive Sports & Entertainment index, while Evolve’s 50-stock portfolio replicates the Solactive eGaming index.
Toronto-based Evolve Funds Group Inc., mainly a sponsor of thematic funds, has seen solid returns since the e-gaming ETF launched in June 2019, with the fund delivering an annualized 27.2% return since inception to Oct. 31.
Like beer sold at major-league games, these ETFs charge premium prices for thematic indexing. Harvest’s management fee is 50 basis points and Evolve’s is 70. In comparison, management fees for equities ETFs tracking broad-market U.S. and Canadian indexes are commonly in single digits.
Harvest’s launch coincides with the reopening of arenas, stadiums and other entertainment venues, which had been closed to curb the spread of the Covid-19 pandemic. “The stadiums were empty for the better part of the past 18 months, and they’re now starting to fill up again,” said Michael Kovacs, president and CEO of Oakville, Ont.-based Harvest Portfolios Group Inc. “We’re seeing growth resurgence in that area.”
The revival of mass entertainment is bullish for the 25% of the Harvest portfolio that’s allocated evenly between professional sports — including its holding in the British soccer team Manchester United — and ticketing and events-related holdings such as Live Nation Entertainment Inc. Another 25% of the portfolio is dedicated to sports apparel and equipment, such as Foot Locker Retail Inc. and fitness equipment provider Peloton Interactive Inc.
The remaining half of the Harvest portfolio is divided into equal portions of internet gambling and e-gaming stocks, which are experiencing faster growth in revenue and popularity than traditional sports.
For example, sports betting is now legal in 32 U.S. states, up from only seven in 2019. “We’ve got this whole side of the market that’s growing as regulations lighten up,” Kovacs said.
Raj Lala, Evolve’s president and CEO, said his company’s e-gaming ETF is a pure play that’s global in scope and has very little overlap with broad market indexes. Only three of the ETF’s holdings are also constituents of the NASDAQ 100 index, and only three overlap with the S&P 500 composite index.
“What we can say to investors very confidently,” Lala said, “is that by utilizing a fund that capitalizes on a theme like this, you are getting exposure to companies that you most likely don’t already have exposure to.”
Lala said the e-gaming industry grew to an estimated US$176 billion in revenue this year, or two-and-a-half times the size of the film and music industries combined.
Publishers have developed multiple revenue streams to engage consumers, including sponsorships and advertising. “It’s not just people playing or competing in games,” Lala said. “It’s people watching other people play games as well.”
Pandemic-driven lockdowns contributed to the boom in e-gaming as people spent more time at home and had fewer opportunities for in-person recreation. This raises the question of whether reopening will reverse those gains.
While Lala believes there will be less at-home e-gaming as people return to work, school or vacationing, he said the key drivers of future growth will be the world’s four billion smartphones and the rollout of 5G network technology.
“We think we’re entering that next leg of growth opportunities within e-gaming,” Lala said, “which is the mobile functionality and faster connection speed.”