ETC Group has jumped on the metaverse ETF bandwagon, launching the Global Metaverse UCITS ETF – the first pure-play fund of its kind in Europe. Its founder and co-CEO Bradley Duke talks to Opto about what sets the fund apart from its competitors and why the virtual worlds of the future are an $800bn market opportunity.
The London Stock Exchange (LSE) has officially entered the metaverse. Through a partnership between specialist provider of digital asset-backed securities ETC Group and white label exchange-traded fund (ETF) provider HANetf, the Global Metaverse UCITS ETF [METR.L] listed on 17 March to become the first of its kind in Europe.
Rather than including companies in the fund that are simply seen as paying lip service to the metaverse theme, Bradley Duke (pictured above), founder and co-CEO at ETC Group, explains that he wanted to build a fund that was made up of pure-play stocks that “would evolve over time”.
“We didn’t want something that was going to look like a digital assets [fund]. [Many providers] come out with DeFi ETFs that look just like a regular blockchain and digital assets ETF because there’s no difference between the key players,” Duke told Opto, adding that the fund seeks to hold companies that will be “important in shaping this growing industry”.
Some of the biggest constituents in the Global UCITS Metaverse ETF as of 28 March include Apple [APPL], PTC [PTC], Nintendo [7974.TO] and S4 Capital [SFOR.L], which had a 7.2%, 5.4%, 4.7% and 4.1% weighting in the fund, respectively.
With the aim of providing pure-play exposure to the nascent metaverse industry, the index is composed of companies involved in virtual and augmented reality (VR/AR), 3D graphics, semiconductors, wireless communications, online gaming, video streaming, blockchain technologies and cloud computing. It tracks the Solactive ETC Group Global Metaverse Index, which uses an artificial intelligence (AI) system, ARTIS, to select holdings.
In its first week of trading, the fund gained close to 4% closing at $6.63 on 24 March. That growth has shown signs of continuing, with the fund closing up 4.7% since its launch (through 28 March).
Growing competition in the cyberspace
The metaverse has become one of the most sought-after investment themes on the ETF block, with several funds launching across Asia and the US in the past year. Despite being a laggard in the space, Europe has finally welcomed its first through the Global UCITS Metaverse ETF. But competition is heating up.
Research from Bloomberg estimates that the metaverse ETF industry could reach as high as $80bn in assets under management by 2024, representing just 10% of the $800bn market for virtual social worlds. As of 7 February, pure-play metaverse funds have seen $247m of inflows so far this year, marking a 24% increase from last year.
Estimated metaverse ETF total assets under management by 2024, per Bloomberg
Capturing a significant part of that growth is Asia. According to Trackinsight, the region is home to more than 10 metaverse funds, with the majority listed in South Korea, such as the Mirae Asset Tiger Fn Metaverse ETF [400970.KS] and the KB KBSTAR iSelect Metaverse ETF [401170.KS]. In the US, the Roundhill Ball Metaverse [METV] gathered $980m out of the $990m of inflows that went to America-domiciled metaverse funds. Since its launch, several others have flooded the market, including the Fount Metaverse ETF [MTVR], Evolve Metaverse ETF [MESH] and Horizons Global Metaverse Index ETF [MTAV].
With an expense ratio of 0.65%, the Global Metaverse UCITS ETF is not the lowest cost exchange-traded product (ETP) in Europe. But Duke clarifies that this is “not set in stone”. While Roundhill’s Metaverse ETF undercuts its competitors with an expense ratio of 0.59%, Duke says that it’s important that investors look at the quality of the product.
One of the standout features of ETC’s fund is the fact that it is global, Duke explains: “Rather than just having an insular US focus, [it] will make it more palatable and more attractive to international investors.” Goldman Sachs sees the metaverse as a $12trn global opportunity, with Gartner estimating that 25% of the world’s population will spend at least one hour of their day in virtual worlds by 2026.
For Duke, the metaverse and blockchain technologies are intertwined. “On the one hand, you have the tech for AR and VR headsets and all the other [components] that enable the immersive experience. But then you have the concept of the Web 3.0 experience… which is evolving and changing,” he explains.
“It’s an interesting focus for investors given that so many big companies are making big bets on the metaverse. The fact that Facebook [Meta Platforms] even went as far as to change their whole name. It’s incredibly bold.”
“It’s an interesting focus for investors given that so many big companies are making big bets on the metaverse. The fact that Facebook [Meta Platforms] even went as far as to change their whole name. It’s incredibly bold” - Bradley Duke, founder and co-CEO at ETC Groupp – p
ETC’s growth in digital asset ETFs
Founded in 2018, ETC Group has grown to have more than $1.059bn in assets under management as of late March 2022. The company was first to market with a centrally cleared bitcoin ETP on Deutsche Börse Xetra and has since partnered with HANetf to launch several other funds focused on the cryptocurrency space.
The firm’s co-CEO Duke has worked in the technology side of financial services for more than 20 years, with stints at Jefferies [JEF], KCG and BCS Global Markets. In his role at ETC, Duke is focused on developing investment products that offer exposure to the digital asset space, which he sees as being part of the next big internet platform.
“I feel like it’s the beginning of a real shift in the way finance and banking works in relation to the next internet experience. It’s quite an interesting time because we’ve historically continued to use real-world fiat currency for our transactions, but now we’re moving into virtual currencies, which doesn’t yet exist anywhere on the internet.”