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Metaverse storms ETF charts to become industry’s hottest concept
A total of 35 vehicles have now launched since the first was unveiled in June last year
The metaverse has become the hottest concept ever in the history of exchange traded funds — despite steady media coverage suggesting there has been little interest in the “sub-theme”.
A total of 35 metaverse-badged ETFs have launched globally since the first rolled off the conveyor belt in June 2021, according to data from Morningstar.
This exceeds the number for any other “sub theme”, according to Morningstar classifications, ever, trumping the 32 for internet ETFs, 29 for blockchain ones, 23 for cloud computing and 22 for cyber security.
The avalanche of launches has come despite an embarrassing lack of traction for many early offerings in the metaverse — a futuristic immersive version of the internet enabled by virtual and augmented reality.
Even Meta Platforms, which was so enamoured by the concept that it changed its name from Facebook to “reflect its focus on building the metaverse”, has started to lay off workers associated with the project.
But when it comes to ETFs, “we have seen very, very fast uptake”, said Kenneth Lamont, senior fund analyst for passive strategies at Morningstar. “It’s the quickest ever.”
“We always imagined that there would be a multitude of other funds coming to market,” said Matthew Ball, a venture capitalist who created the index that underpins the first and largest metaverse fund, the $400mn Roundhill Ball Metaverse ETF (METV), which launched in June 2021.
“It has always been our view that the metaverse is a multitrillion dollar, multi-decade opportunity. There was no scenario in which we didn’t see a flood of other ETFs coming to market.”
In METV’s wake, a further 11 metaverse ETFs launched globally in the fourth quarter of 2021 alone, according to Morningstar’s database; 23 more have seen the light of day this year.
And the ETF industry is far from alone in licking its lips at the possibility of rapid growth. Citi forecast earlier this year that the metaverse could boast up to 5bn users and generate revenues of between $8tn and $13tn by 2030. Morgan Stanley foresees $8tn in each of the US and China, irrespective of the rest of the world, while Goldman Sachs talks of a $12.5tn opportunity.
Based on World Bank GDP growth forecasts, that means the metaverse will account for between 6 and 40 per cent of global economic growth over the next eight years, Ball said.
“It’s the next generation internet. I would call it a master theme in the decades to come,” he added.
Investors, as well as the hoped-for early-stage users, may be less convinced, however.
Net flows to metaverse ETFs totalled $2.6bn between October 2021 and February of this year, according to Morningstar. However, since then, they have turned negative, with $111mn being withdrawn.
Valuations of the underlying stocks have also been caught up in the wider technology sell-off, with total ETF assets sliding from a peak of $2.3bn in March to $1.3bn.
This reversal is unlikely to sap industry enthusiasm for long, though. “There are more players looking at the market, holding their surfboard waiting for the next wave,” Lamont said.