A Brief Introduction to Metaverse ETFs – What Are They, And How Do They Work?

Unsurprisingly, the metaverse has brought about much excitement as this revolutionary concept will change how we work, socialise, and interact with the world we live in. Whilst the term “Meta” is a Greek terminology that essentially translates to “beyond”, the “Metaverse” is defined as a universe which fundamentally transcends beyond the physical one, where one’s imagination only limits the possibilities and opportunities offered by the futuristic virtual world.

With that, the metaverse creates an exciting opportunity for brands and corporations to connect with their customers via a novel yet innovative approach. Organisations such as Nike, Balenciaga, McDonald’s, and Prada are already tapping into this space. Hence, there is no doubt that this phenomenon will continue for other firms in the not-so-distant future, or perhaps even as we speak!

Given the enormous potential of the metaverse, a large volume of money has been pumped into this space as investors worldwide begin to formulate an extremely bullish thesis on the future of social interactions and how the Internet can scale it. Fascinatingly, a 2022 report by McKinsey & Company reported that venture capital (VC) and private equity (PE) investments into the metaverse globally reached a total of US$57 billion that year alone. Moving forward, the value of the metaverse sector is projected to reach US$5 trillion in impact by 2030.

Nevertheless, it is imperative to remember that the metaverse sector is still in its infancy, even though high levels of consumer interest in this space cannot be denied. A lot still needs to be done before its full potential can be realised. As a result, investors will need to conduct their due diligence wisely in order to hedge themselves against the high risks associated with investing in a novel industry.

What are Metaverse ETFs?

To put it simply, Exchange-Traded Funds (ETFs) represent a basket of securities (like stocks) traded on an exchange. Some of these ETFs may be characterised by certain investment themes (such as a particular industry, company size, etc.).

In the case of metaverse ETF, it describes a basket of company stocks exposed to the metaverse sector. It enables investors to benefit from their exposure to the ever-expanding metaverse space while minimising their investment risks by diversifying their capital allocation. In short, metaverse ETFs can be seen as a lower-risk investment asset for individuals looking to make money from this growing market.

Popular Metaverse-Themed ETFs to Look Into

The first-ever metaverse-themed ETF, the Roundhill Ball Metaverse ETF (ticker symbol: METV), was launched in the United States in 2021. At the point of writing, METV manages a total of US$518 million, representing 90.3% of total assets under management (AUM) in this sector, and primarily focuses on large-cap companies with more than US$10 billion in market capitalisation. On top of that, this ETF is designed to monitor the Ball Metaverse Index performance closely and gives investors exposure to companies that are actively operating in the metaverse, whether it is through the development of virtual platforms, payment gateways, three-dimensional (3D) simulations, interactive content, computing power, or the relevant hardware. Thus, companies such as Nvidia, Unity, and Roblox fall under METV’s list. As an investment instrument, METV offers a dividend policy in which any income will be distributed to the shareholders.

Another notable metaverse ETF to keep in mind would be the Fidelity Metaverse ETF (ticker symbol: FMET). Since its launch on the 19th of April 2022, FMET became the second-largest metaverse ETF managing an AUM of approximately US$10 million, and it essentially tracks the performance of the Fidelity Metaverse index. The assets covered in FMET are globally diversified, with 46% of its portfolio covering the United States, 17% invested in China, 14% in Japan, 12% in South Korea, 5% in France, and the remaining funds spread across four markets in Asia, Oceania, and Europe. Unlike METV, FMET invests in a range of company sizes, in which circa 65% of the capital was allocated to large-cap corporations, 25% placed in mid-cap companies, 9% in small-caps, and 0.82% in micro-cap firms. Meanwhile, FMET spreads its investments across a variety of industries such as entertainment (35%), interactive media and services (23%), software (15%), as well as semiconductors and semiconductor equipment (7%). Just like the arrangement for METV, FMET does offer dividends to their shareholders if any income were to be generated from their investments.

How To Select The Right Metaverse ETF(s) for Yourself?

With ample research, investors will soon come to realise the myriad of choices for metaverse-themed ETFs and thereby struggle to select the suitable ones to allocate capital to. In the meantime, do consider checking out the works by Metaverse Insider to learn more about this futuristic technology and the latest events in this space!

Also, here are some of the crucial factors which individuals ought to consider prior to making their decision:

Types of securities covered

Each metaverse ETF will have its unique list of securities they invest in. Therefore, investors are strongly advised to review the specific securities covered by their ETF of interest. In the majority of cases, some of the safer securities would include stocks of blue-chip corporations such as Apple, Meta, and NVIDIA.

ETF investment theme

Each metaverse ETF would concentrate their investments on a specific sector. As a result, investors should develop a solid understanding of the particular niche that the ETF is focusing on before taking on any investment risks. For instance, should an investor lack in-depth knowledge of the payments industry, investing in a payments-centric metaverse ETF like the Global X Fintech ETF (ticker symbol: FINX) may not be a wise decision.

Fees

Investors will be charged a different fee depending on the metaverse ETF they have invested in. Thus, it is highly advised that investors compare the fees offered by each ETF before making a selection, as they significantly impact your overall profitability.

Concluding Remarks

With the metaverse promising a thrilling change in how we live our daily lives, the upside for investments in this space is indisputably huge. Regardless, it is crucial for investors to formulate an objective investment thesis and critically evaluate the various metaverse ETFs available in today’s market to maximise their potential returns in the long run!

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Interesting Related Article: “What Exactly Is the Metaverse? A Beginners Guide to the Metaverse“