Metaverse ETFs only make sense in fantasyland

No social media company has an investment fund for new ideas

The metaverse is a ‘must-have’ for every investor in thematic ETFs, however, this move to the digital plains comes at a time when investors are losing enthusiasm for abstract concepts, sci-fi and fruitlessness.

A term born out of a 1992 science fiction novel Snow Snow In terms of immersive virtual worlds, the metaverse has resurfaced over the years in video games such as Second Life in 2003, Roblox in 2006 and Sandbox in year 2012.

However, in the last couple of years the movement has escaped the geeky fringes and flown into the mainstream. First, when the COVID-19 pandemic forced colleagues into virtual meetings plagued by poor Wi-Fi, friends into virtual reality concerts and tours, and even enthusiasts to ride a real bike playing videos of rolling hilly terrain.

So, after the life of the world began, the world’s largest social media company – formerly Facebook – went all in on the idea that it was difficult to contribute something original at in years.

More than 12 months after its name change to Meta and the company’s recent results reveal the extent of Mark Zuckerburg’s $100 billion disaster.

Its Q3 profits fell 36% year-over-year and profits for the quarter also fell from a year earlier, the first time since the company’s IPO. Some of this number is due to market pressure and declining advertising revenue but also what venture capitalists Altimeter Capital estimates the social media giant has between $10 billion and $15 billion a year in spend on research and development for the metaverse.

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“Meta has put all of its business on the line for the metaverse, which does not exist and is not financially viable,” said GlobalData project analyst Rachel Foster Jones. The Guardian.

“The metaverse probably won’t be profitable for another decade, and threats of price freezes aren’t enough to convince investors that Meta is paying bills now.”

Naturally, Meta’s commitment to the project will make it a major player in Europe’s top five metaverse ETFs. Meta is also a member of the Metaverse Standardization Forum alongside Microsoft – a leading holding in three metaverse ETFs – although the latter is considered less of a megatrend.

Ahead of the latest installment of the Call of Duty franchise, Microsoft is expected to have the best first week of gaming launch in its history, the company’s CEO of gaming and head of Xbox, Phil Spencer, derided the metaverse in its current form as a “poorly constructed. video game”.

Other key technology players are also in the mix. The new CEO of Twitter Elon Musk said at the end of last year that consumers will not believe that they “put a screen on their face all day and don’t want to leave it.”

“We are far from lost to the metaverse,” Musk said.

Elsewhere, Apple CEO Tim Cook talked about his company’s plans to develop more augmented reality (AR) headsets and said it was a “profound technology that will affect everything”, however, in he said “I’m not sure the average person can tell you what the metaverse is”.

Despite these doubts and the fact that Apple’s AR headset isn’t expected to launch until next year at the earliest, it has three major shares in all but one of Europe’s metaverse ETFs.

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ETFs are subject to the rules of the virtual world

ETFs from HANetf, Roundhill Investments, Legal & General Investment Management, Franklin Templeton and Fidelity have had a tough start to life, with all five launching in the half year between March and September.

With Meta down more than 71% and Roblox down more than 55% so far in 2022, the world’s largest metaverse ETF strategy – holding $2m Roundhill Ball Metaverse UCITS ETF (METV) in Europe – has returned -21.1% over the past six months, as of 28 October, according to data from ETFLogic.

To put this into context, it’s been a dismal year for tech funds which saw the $5.2bn Invesco EQQQ Nasdaq 100 UCITS ETF (CNDX) fall 10.6% in the same period as the price was held of 0.30% to 0.59% for METR. This may go some way to explaining why METR’s ’40-Act’ issuance has seen its assets under management (AUM) drop from $906m to $401m since January.

The lack of acceptance of metaverse ETFs is particularly evident in Europe, with five products on the market amassing just $16m AUM.

Apart from explanations based on the uncertain timing of the market and their launch, European investors may not fully understand the concept or how to capture it in the ETF format.

Of course, the combination of the new project and the large companies in the product guarantee means that the voters will probably get most of their profits from non-metaverse activities – because it’s unlikely that taking over the metaverse will be the main reason for their return for what they see.

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The large differences in the sector weights of each strategy indicate a lack of agreement on what the metaverse is, even among listed companies.

While the $4m Fidelity Metaverse UCITS ETF (FMVR) does not include Apple among its major players, instead opting for gaming heavyweights such as Tencent and Nintendo, the $2m Franklin Metaverse UCITS ETF (FLRA ) favors virtual payment providers Mastercard and PayPal.

To further illustrate the lack of a standardized view on the subject, Solactive alone released seven metaverse benchmarks for ETFs to track at the beginning of the year.

Looking ahead, investors should keep an eye on whether other active ETF issuers — BlackRock, Invesco, First Trust and Rize ETF — are throwing their hats in the virtual ring.

It remains to be seen if the program can be effective and help the relevant companies and ETFs track them better. Currently, the wrapped metaverse products are less of a virtual world than they seem, and more of a dream.

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