What Is a Metaverse ETF?

The Metaverse is poised to become a revolutionary new concept for technology and the user experience. It entails an immersive virtual world where users can engage with each other, their surroundings, and digital humans powered by AI through incredibly realistic interactions.

It could be as transformative as the advent of the internet in the 80s and 90s, which is why Meta CEO Mark Zuckerberg referred to it as an “embodied internet” in his October 2021 letter.

Unsurprisingly, companies began investing heavily in the Metaverse to gain a first-move advantage. According to a Crunchbase 2021 report, the Metaverse attracted approximately $10 billion USD in venture funding last year, across VR gaming, immersive online games, augmented reality, and virtual worlds.

Cryptocurrency investment company, Grayscale, called the Metaverse a $1 trillion opportunity and Morgan Stanley noted businesses had increasingly mentioned the Metaverse in their company earnings calls from less than 10 times in December 2020 to 73 times by June 2021.

An important way to invest and earn from developments in the sector is through Metaverse exchange-traded funds or metaverse ETFs.

An Exchange Traded Fund (ETF) can be defined as a basket of securities that is tradeable on the stock market. It combines the characteristics of traditional shares and mutual funds, as it is a collection of securities spread across companies like a mutual fund, but can be traded as a bundle on the stock market, just like shares.

ETFs are mostly passively managed, which means that fund managers do not regularly buy and sell the securities in ETFs to return a profit and increase its value. Rather, they identify potentially high-value assets and invest in them for the long term, which is what makes it a good fit for emerging technologies like the Metaverse.

Metaverse ETFs are themed funds that invest in the best performing Metaverse and related stocks available on the exchange. They have low to moderate diversity and seek to gain from early and high-value investments in the burgeoning Metaverse sector.

Given the recent meteoric rise of interest in the Metaverse, they are an attractive investment opportunity for moderate to high-risk-appetite asset managers. Over the last year, a number of options have emerged for those interested in Metaverse ETFs.

One of the earliest Metaverse ETFs to be launched was the Roundhill Ball Metaverse ETF by the investment advisor and ETF sponsor Roundhill Investments. The organization trades primarily on the New York Stock Exchange (NYSE) and provides clients with thematic and sector-specific investing options.

The ETF comprises globally listed companies actively involved in the Metaverse, which goes beyond virtual software platforms. It also includes securities from VR hardware providers, content producers, digital payment gateways, and companies providing computer power for the Metaverse. The ETF trades under the ticker METV.

Another important metaverse ETF that was recently launched is the Subversive Metaverse ETF, powered by Subversive Capital, an organization established to invest in “radical companies” with promising future potential.

In addition to investments, it also specializes in acquisitions and initial public offerings (IPOs). Subversive came out with the Subversive Metaverse ETF in January 2022, which will trade under the ticker PUNK. It will have shares from 55-65 at any given time, spanning sectors like information technology, communication services, healthcare, financial services, and consumer discretionary goods.

One more Metaverse ETF that is yet to be launched is the ProShares Metaverse Theme ETF. ProShares is an ETF company that offers non-diversified high-risk, high-gains funds. It has several thematic ETFs in sectors like big data, nanotechnology, smart materials, online retail, and bitcoin, which makes it ideal for metaverse investments.

In 2021, the company submitted its filing with the US Securities and Exchange Commission (SEC) expressing its intention to launch a metaverse ETF – this submission is under review.

After ProShares, financial services giant Fidelity Investments also filed an application with the SEC to launch its own Metaverse ETF. It intends to cover companies that “develop, manufacture, distribute or sell products or services” related to the Metaverse, and is still under review.

In addition to these prominent US Metaverse ETFs, South Korea is a popular destination for investments. Currently, there are four different Metaverse ETFs operating in the Korean Stock Exchange, which are:

Interestingly, Samsung’s Metaverse ETF tracks and invests in securities by US-listed companies, meaning investors purchasing the Samsung ETF can directly fund and gain from US companies developing the spatial communications platform.

Metaverse ETFs are a convenient and attractive investment vessel for technology investors in 2022. It provides access to a fast-growing sector, which is still in its infancy so that investors gain from an early mover advantage.

Investment research and information around the Metaverse is still not widely accessible, making such ETFs even more important for interested investors. Manually identifying, tracking, and purchasing shares from top-performing Metaverse companies may be difficult, but purchasing a metaverse ETF is much more convenient.

On the downside, the Metaverse is still an evolving technology and there is no guarantee about the timeline of its release or market adoption rates. As it is, ETFs operate in non-diversified and high-risk asset classes and combined with the risk-prone nature of the Metaverse, it could prove challenging for investors.

Also, the SEC has typically taken a not-so-bullish approach to emerging technologies and rejected multiple bitcoin ETFs last year. It could be slow in approving Metaverse ETFs, which means that investments become channeled only via the handful of options available.

Finally, the Metaverse is still a volatile sector, underscored by the fact that the share prices of Meta Platforms Inc. fell by over 22 percent due to a weak earnings forecast.

Although this was due to Meta’s large-scale investment in the platform — which is expected to return profits only in the long term — it will definitely impact ETF holders. Investors must weigh all of these pros and cons when considering them.