Investing in Gaming ETFs: Gambling, Leisure, and Video Games

What They Are and How to Add Them to Your Investment Portfolio

People placing bets on a roulette table.
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Entertainment exchange-traded funds (ETFs) are funds designed to track the best-performing entertainment-based stocks. Investors looking to add sectors within the entertainment industry to their investment portfolio might consider adding gaming, gambling, and leisure ETFs.

Learn more about these ETFs and how they can help strengthen your portfolio.

What Are Entertainment ETFs?

Some entertainment ETFs are built around video gaming, gambling, or leisure stocks. Although these stocks may be categorized separately, they are typically grouped as a sub-sector within the consumer discretionary stock sector. They are also sometimes referred to as a subset of "consumer cyclical stocks."

Entertainment ETFs often invest in gambling casinos, such as Las Vegas Sands Corp. (LVS). Newer versions also focus on the stock of companies capitalizing on the explosive growth in mobile and online gaming. Other types of gaming ETFs may invest in stocks of companies that manufacture video games, such as Nintendo (NTDOY).

Leisure ETFs may also invest in gaming stocks, but they typically invest in shares of companies in the travel and entertainment industry, such as United Airlines (UAL). 

For example, the VanEck Vectors Gaming ETF (BJK), which trades on the Nasdaq stock exchange, tracks the MVIS Global Gaming Index. The MVIS tracks the overall performance of about 40 companies involved in casinos and casino hotels, sports betting, lottery services, gaming services, gaming technology and gaming equipment.

Some of the more well-known global casino companies on the index are MGM Resorts International, Las Vegas Sands Corp. and Caesars Entertainment Corp. The MVIS Global Gaming Index also holds stocks from online betting platforms around the globe.

The Rise of Gambling During the Pandemic

The coronavirus pandemic led to some interesting consumer spending developments as people's activities became limited. This change contradicted the findings of many years of consumer spending analysis that demonstrated a tendency to save and reduce spending during recessions.

Many consumers turned to online betting and casino platforms during the pandemic-influenced economic downturn instead of avoiding entertainment spending.

Mobile gambling apps and consumer boredom from lockdowns created a surge of interest in gambling in 2020. The gambling industry saw a rise in investing (and consumer) interest during the pandemic.

Scientific Games Corp. (SGMS), a gambling and lottery services company, experienced a total revenue reduction similar to many businesses during the pandemic. Revenue from its gaming machine sales and operations decreased dramatically.

The pandemic caused consumers to look for other ways to entertain themselves and created a surge in online and mobile gambling.

However, revenues from digital, web-based, and mobile services significantly increased in 2020—$888 million compared to $741 million in 2019, and $686 million in 2018.

Flutter (FUBO), a global sports betting and gaming operator, more than doubled its profits in 2020. A merger in 2019 may have influenced this, however, there were still significant profits generated from digital services.

Annual reports from both companies don't demonstrate significant investor activity, but this could change following the release of a study about gambling that showed an increase in mobile activity attributed to lockdown boredom.

As an example of the newly found interest in casino and gambling ETFs, one year after the pandemic-influenced stock market crash in March 2019, the VanEck Vectors Gaming ETF reached a 52-week high of $57.41 per share—after hitting a 52-week low of $26.50 one year earlier.

Pros and Cons of Entertainment ETFs

  • Good for long-term growth.

  • Can perform well during many economic phases.

  • Good for adding additional sectors to a portfolio for diversity.

  • Concentrated sectors result in lack of diversity within the funds.

  • Limited availability.

  • Tend to perform less during economic downturns.

Pros Explained

  • Long-term growth: Gaming, gambling, and leisure industries are consumer discretionary stocks; they tend to perform best when the economy is strong. However, the gaming industry grows well over the long term.
  • Performance: When an economy is performing well, the gambling and gaming stocks tend to do so because consumers have more money to spend. However, this seems to have increased during the pandemic, when consumers had nothing else to spend on.
  • Diversity for existing portfolios: Gambling and gaming stocks make excellent diversity additions to a portfolio.

Cons Explained

  • Concentrated: Gambling and gaming ETFs are focused on one sector, so they might not be viable for someone who is looking to diversify a portfolio that already has ETFs from this sector.
  • Limited availability: There are only a handful of gambling and gaming ETFs available.
  • Performance during downswings: Traditionally, gambling and gaming stocks lose value when the economy begins to contract. However, as mentioned before, this changed with the onset of the Covid-19 pandemic.

Investors considering the purchase of gaming, gambling, and leisure ETFs should keep in mind that the market risk for sector funds like these tends to be higher than for ETFs and mutual funds that invest in a broadly diversified market index, such as the S&P 500. 

How to Choose Entertainment ETFs

Only a handful of ETFs invest solely in stocks of companies in the gaming, gambling, and leisure industries. However, this small selection may make the research process easier.

When looking for an entertainment ETF in this sector, it's most important to choose one that is:

  • Diversified
  • Liquid
  • Performing well over time

The ETF should invest in a broad cross-section of gaming stocks without concentrating its holdings in a narrow sub-sector. For example, the VanEck Vectors Gaming ETF mentioned earlier has over 40 holdings from different gambling, gaming, and leisure companies worldwide.

Higher liquidity is generally better than lower liquidity for investment pricing. An "Liquidity" of an ETF refers to how easy it is for investors to buy and sell it in the market. If an ETF is thinly traded, it may experience more volatility in price (more specifically, greater distance in the bid/ask spread).

Generally, the greater the asset value under management, the greater the fund’s liquidity. BJK has nearly $17.5 million under management and a 65-day average daily trading volume of 59,000—the fund has some liquidity, but investors might experience some difficulty selling shares.

The VanEck Vectors Gaming ETF has had continuous growth since January 2008. If the market continues to experience growth in the long term, this ETF should continue to generate positive returns.

Using these criteria, BJK is an excellent choice for an investor who follows a buy-and-hold strategy, looking for value increases and dividend payouts in the long run. BJK might also benefit day-traders during times where consumers are looking for alternative methods of entertainment.

Before investing, take the time to learn about various ETFs or mutual funds through research websites optimized with tools for comparing and analyzing them.

The Bottom Line

Entertainment ETFs may be an intelligent way to add concentrated exposure in a narrow sector to a portfolio. Sector funds like casino ETFs can be used if an investor has enough other assets in a broad, diversified portfolio to hedge the risk posed by a narrow ETF.

As the planet's climate changes, and pandemics potentially sweep the globe, video gaming, gambling, and entertainment ETFs might become an essential part of many investors' portfolios.

Investors and consumers are finding alternative ways to spend their time and money; entertainment has become especially necessary for a population facing social restrictions and increasing natural disasters.

The Balance does not provide tax or investment advice or financial services. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.