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What New Metaverse ETFs Mean for Investors

By Demitri Kalogeropoulos, Asit Sharma, and Rachel Warren – Updated Dec 13, 2021 at 6:28PM

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Buying options are proliferating in this high-growth tech industry.

Metaverse investors are getting new options for gaining exposure to this nascent market. Two new exchange-traded funds (ETFs) were launched on Canadian exchanges recently, and U.S. funds are gaining in popularity, too.

In this video from "The Virtual Opportunities Show," broadcast on Nov. 30, Motley Fool.com contributors Demitri Kalogeropoulos, Asit Sharma, and Rachel Warren discuss the new funds and debate whether investors should consider buying them rather than picking individual stocks in the young metaverse niche.

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Asit Sharma: What did you see this week that caught your eye?

Demitri Kalogeropoulos: I saw some cool news. Bloomberg reported this yesterday that there's this race to launch the first metaverse exchange-traded fund, ETF, in Canada. Two funds,  -- kind of call it a tie -- they both launched on Monday in that race to be the first one down. The first one is called the Evolved Metaverse ETF and the Ticker is MESH, and the other one is called Horizons Global Metaverse ETF, MTAV is the ticker symbol.

I take this is just another big sign about how this space is gaining a lot of attention in the investing community obviously. Especially, it seems have had a whole different level after Facebook changed its name to Meta and got a lot of investors thinking about that metaverse thing. This also got me thinking to check on U.S. ETFs centered on the metaverse. One really popular one that you might have heard of, it's called Roundhill Ball Metaverse (METV -0.35%). The ticker symbol is appropriately META.

They bill themselves as the first U.S. exchange-traded fund to launch. They came out in June of this year. It's a very young fund. For those who don't know much about exchange-traded funds, they're basically like mutual funds. They're just a little bit easier to trade as an investor. It can be a great way to get diversification in one single purchase. If you like a sector, for example, or if you want to buy an entire industry, rather than crafting and making all those tiny purchases, you can buy one. I own a lot of index funds. That's where most of my money, I would say, is in a massive fund like that for that reason.

But the U.S. fund, their top holdings are stocks you'd all recognize. No. 1 is Nvidia. They own Roblox, Microsoft, Meta, which used to be Facebook, and Amazon. Those are the top five. Like I said, if you're interested in the space and you want to spread your bets out, you want make a single purchase, I like the idea of ETF.

But one reason I would not consider buying this fund just from looking at it quickly today is their expense ratio's high. It's 0.75%, which might not sound like a lot. Passive index funds have those rates close to zero. I think mine is 0.05 basis points, so it's tiny. That difference over years can be a huge difference. Kind of expensive, but it's still interesting and a good sign, I think, for investors in this space they're getting more opportunities to invest.

Asit Sharma: Rachel, any thoughts on that? I've got some curiosity to hear what you think.

Rachel Warren: I don't currently invest in ETFs, although I've studied them a bit, and I think this is really interesting that you have these types of funds that are becoming an opportunity for people to invest in. I think one of the things like you mentioned that's so great about this type of an investment, although maybe not necessarily these particular ones depending on what your preferences are as an investor, is that you can automatically get such diversification and expose your portfolio to a broad range of sectors depending on the type of ETF you invest in. Maybe invest in one that tracks one of the market indices like the S&P 500.

I think it's a great thing to look at as a newer investor for sure. Also, maybe if you find -- especially in times like right now when the market is really volatile and your portfolio might be a little over-concentrated in a particular sector that's prone to that volatility -- ETFs can be a great way to balance that out.

Asit Sharma: Great points. I guess, Demitri, one thing that occurred to me is when you're building an ETF that is focused on the metaverse, there aren't a ton of stocks that are pure metaverse plays. To Rachel's point, you get this diversification. But at the same time, it might feel like you're buying the usual suspects. But that's not actually true, either. There's some nuance to this. I think you said Microsoft is in the top 5 holdings of this ETF, the last one you mentioned. Microsoft has got its fingers into so many different pies. I've seen them represented in a lot of different ETFs that have a specific flavor. Here it makes sense because Microsoft is one of the pioneers of the early metaverse. At least as it's being expressed maybe in a potential business-to-business setting.

Companies like Microsoft are basically funding the building-out of the metaverse. They make it possible and lead in deployment of capital. It attracts others into the space. When you see Microsoft doing so much and then companies like Autodesk, which I think we mentioned last week, Unity Software (NYSE: U), et cetera, I think that then it makes sense.

Oftentimes, you see ETFs that are just dragging companies in because they want to mimic the market, not lose to the market. Let me find an ingenious way to tie in the five or six companies that make up 20-30% of the total U.S. market capitalization. I'm going to be OK, I'm going to have an alpha that's close to the market if I can do well with, it doesn't matter how many other holdings. But this seems to make some sense to me. I just think that in the future quarters and years, we're going to see a lot more companies that are centered on this space.

ETFs that proclaim to be metaverse ETFs will look so much different, I think, in five years versus today, where you almost have to piece some non-pure -- I don't want to say impure because it sounds so derogatory -- non-pure plays. Any thoughts, Demitri, on that, and then I guess we can move on to Rachel's news for this week.

Demitri Kalogeropoulos: Yeah, to your point exactly. Apple is in their top 10. I think just for that reason, because like you said, you have to get diversification you need with a fund like that, you need big companies and you need enough, but down the list, a lot of these companies you wouldn't -- metaverse isn't one of the first five or six or seven or eight things I think of when I think of Apple. But it might be one of those prospective bets, like you said.

That's because it's looking forward to the companies that have the budget to pour a lot of money, and that seem like they're going to pour a lot of money into the metaverse. You can go down that list, but they have to have a bigger cash position, and Apple is definitely one of those.

Asit Sharma: Absolutely.

Rachel Warren: I'm interested to see what happens with those [laughs] in the coming months and quarters coming like you were saying, especially with companies like that making up a larger portion of those funds. I feel like that can be a really interesting way to invest in this space, especially the metaverse concept of it.

It's something hard to get your head around, but these are great companies that already have such a diversified business structure. You don't necessarily have to fully understand the metaverse to invest.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rachel Warren owns Amazon and Apple. The Motley Fool owns and recommends Amazon, Apple, Autodesk, Meta Platforms, Inc., Microsoft, Nvidia, and Unity Software. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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