Investors are abuzz about the metaverse. This term catapulted into the mainstream in late October when the social media giant formerly known as Facebook announced it was changing its corporate name to Meta Platforms (META -0.28%) to reflect its focus on the metaverse.

The metaverse, which is essentially a melding of the physical and virtual worlds, is widely viewed as the next evolution of the internet. Market size projections for the metaverse vary widely, so suffice it to say this space is poised to be massive.

Let's take a look at the Roundhill Ball Metaverse ETF (METV -0.08%), the world's first metaverse exchange-traded fund (ETF). You might decide that one or more of this ETF's holdings are worth further exploration or that you want to buy the ETF itself.

The word "Metaverse" in front of digital globe of the world.

Image source: Getty Images.

Roundhill Ball Metaverse ETF: Performance and the basics 

This ETF only began trading on June 30, 2021, so it's too soon to make any judgments about its performance. That said, since its inception, it's down 2.1% through Dec. 16. This performance lags that of the broader market, as the S&P 500 index has returned 9.5% and the tech-heavy Nasdaq Composite has gained 4.7% over this period. 

The Roundhill Ball Metaverse ETF is an index fund that's designed to track the performance of the Ball Metaverse Index, which consists of a portfolio of worldwide companies involved in the metaverse. It had 40 holdings as of Dec. 16. The fund is rebalanced quarterly and has an expense ratio of 0.75%, which is moderately reasonable.

This ETF is far from a pure play on the metaverse, as its holdings are mostly huge companies that are involved in multiple businesses. 

Roundhill Ball Metaverse ETF: Top 10 stock holdings

Holding No. 

 Company

Market Cap 

Wall Street's Projected Annualized EPS Growth Over Next 5 Years

Weight (% of Portfolio)

YTD 2021 Return 

 1

Nvidia (NVDA -1.99%)

$710 billion

39.4%

 10.6%

118%

 2

Roblox (RBLX 0.43%)

 $55 billion

N/A

 8.6%

N/A*

 3

Microsoft (MSFT -0.18%)

 $2.4 trillion

16.5%  7.7% 47.3%

 4

Meta Platforms

 $932 billion

21.4%  6.6% 22.6%

 5

Unity Software (U -1.90%)

 $38 billion

N/A  4.9% (13%)

 6

Apple

 $2.8 trillion 15.7%  4.2% 30.6%

 7

Amazon.com

 $1.7 trillion

36%  4.2% 3.7%

 8

Autodesk

 $59 billion

28.8%  4.1%  (11.7%)

 9

Qualcomm

 $200 billion

25.6%  3.9% 19.1%

10

Tencent Holdings

 $545 billion

3.7%

 3.9%

(20.8%)

Total Top 10

N/A

 N/A

N/A

 58.7%

N/A

N/A

S&P 500 / Nasdaq Composite Indexes

 N/A

N/A

 N/A

26% / 17.8%

Data sources: Roundhill Ball Metaverse ETF, Yahoo! Finance, and YCharts. EPS = earnings per share. YTD = year to date. *Roblox went public via a direct listing on March 10, 2021; its stock is up 47.6% from the opening price on the first trading day. Data to Dec. 16, 2021.

Below is a brief look at how the top five companies in this ETF are involved in the metaverse.

Nvidia is a "pick-and-shovel" play on the metaverse. That is, the computer gaming and tech giant provides the tools other companies need to create their own metaverses. Most notable among these tools is its recently launched Omniverse platform. The "Omniverse brings together Nvidia's expertise in AI [artificial intelligence], simulation, graphics, and computing infrastructure," CEO Jensen Huang said last month in the company's release of its stellar fiscal third-quarter results.

Roblox (No. 2) and Unity Software (No. 5) are gaming engines that can be used to create virtual worlds. They're both relatively new to the public markets: Roblox went public in March 2021 via a direct listing on the New York Stock Exchange and Unity held its initial public offering (IPO) in September 2020. Both companies are rapidly growing revenue, but neither is profitable from an accounting standpoint. 

Microsoft has been building Mesh, its mixed-reality platform that will power Microsoft Teams and other applications. Users will be able to access Mesh on the company's enterprise-focused augmented-reality headset HoloLens 2, as well as virtual reality (VR) headsets, mobile phones, tablets, or PCs using any Mesh-enabled app.

Last week, Meta Platforms took its first leap into the metaverse via its public launch of Horizon Worlds to adults in the U.S. and Canada. Horizon Worlds is a free social VR platform in which users equipped with the company's Oculus Quest 2 VR headsets can interact.

A solid way to invest in the metaverse

The Roundhill Ball Metaverse ETF looks like a solid way for investors to get exposure to the metaverse. The drawback of ETFs is the same as their advantage: diversification. Indeed, investors willing to do some work and select individual stocks should have a decent shot at outperforming this fund. 

If you're looking for a larger company that's profitable, it's probably hard to go wrong with Nvidia, Microsoft, Amazon, or Apple. Meta Platforms (the former Facebook) isn't as good a bet. It has higher regulatory risk than the other big U.S.-based tech companies, in my view. Moreover, it has nearly all its (revenue) eggs in one basket because it generates almost all of its revenue from digital advertising.

Risk-averse investors should steer clear of Tencent Holdings because it's headquartered in China. The Chinese government has been cracking down on tech companies, making their regulatory risk high.