METV: Metaverse presents opportunities for technology stocks

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investment thesis

Metaverse ETF (Metaverse Round Ball)New York City: METV) to provide investors with exposure to the Metaverse. Emerging technologies such as virtual reality and game engines allow metaverses to take shape and grow over time. They seek to expand the capabilities of the virtual world.

Based on data from Bloomberg Intelligence and Ark Invest, Metaverse is expected to be one of the fastest growing technology sectors and will double by 2025. Despite the exciting forecast, I think the market continues to evolve and it is difficult to pick the winners correctly now. If we look at the valuations of the entire portfolio, I think many components are overstated and that long-term investors would be better off holding long call options rather than buying the underlying stock. However, METV can be a great option for speculators looking to exploit volatility in their short-term strategy.

Rundhill Investments

Rundhill Investments

Policy details

The Roundhill Ball Metaverse ETF tracks the Metaverse Ball Index. The strategy aims to learn about the metaverse, which can be described as an alternative to the current Internet that provides an experience that bridges the virtual and real worlds. This includes companies involved in computing, networking, virtual platforms, exchange standards, and payments.

If you want to know more about the strategy, please click here.

Portfolio Configuration

From the sector allocation table below, we can see that the fund places a high weight on companies offering gaming platforms (~20%), followed by computer component suppliers (~19%) and companies developing cloud solutions (16%). In total, the top three sectors represent about 55% of the fund’s total assets. In terms of geographical distribution, approximately 81% of the fund is invested in the United States, followed by Singapore (~4.6%) and South Korea (~4%).

Mitv

METV fact sheet

METV invests approximately 46% of its funds in large-cap growth stocks, which are characterized as large companies where growth factors prevail. Large-cap companies are generally categorized as companies with a market capitalization of more than $10 billion. The second largest allocation is made up of large-cap mixed stocks, which make up 25% of the total assets. Interestingly, METV invests about 66% of the money in developing stocks, which are generally more volatile than value stocks. Meanwhile, issuers of small capital are underrepresented due to their low weight. Some investors prefer higher exposure to SMEs due to their ability to outperform larger capitals over a long period.

morning Star

morning Star

The fund currently invests in approximately 43 different stocks. The 10 largest holdings account for about 44% of the portfolio, with no stock weighing more than 9%. In my opinion, METV is well diversified, as I think there are a limited number of companies in this field at the moment.

METV fact sheet

METV fact sheet

Since these are stocks, an important characteristic is the valuation of the portfolio. According to Morningstar data, the fund is currently trading with a price-to-book ratio of about 5 and an average price-to-earnings ratio of about 23. After looking at the voter list, I can say that these companies are among the largest in the world and have a clear gap. While some are attractively priced, such as Meta Platforms Inc. (FB), most of the wallet looks overpriced. Also, a higher interest rate in developed markets clearly does not bode well for higher PE stocks, making the bullish notion risky in my opinion.

Is this ETF right for me?

Below, I compare METV’s price performance against the Invesco QQQ ETF (NYSEARCA: QQQ) over the past nine months to determine the best investment. During this period, QQQ outperformed BOTZ by more than 23 percentage points. To put METV’s performance into perspective, investing $100 in this ETF initially would be worth around $73.94, which is an absolutely awesome relative return.

Since there isn’t a lot of data on METV yet, I think it’s difficult to assess the fund’s performance over a long period of time. However, I think the past few months have provided some insight into the severity of METV’s dips, both from an absolute and a relative perspective, which makes me wonder how volatile this strategy will be going forward.

Personally, I think this strategy will still be more volatile than QQQ in the current macro environment, and may underperform in the short term. In the long run, everything will depend on the actual success of the metaverse. At the moment, I believe that the speculator can take advantage of the volatility on the short or long side. For long-term investors, I think call options are a safer alternative to simply buying the underlying stock.

Refinitiv Icon

Refinitiv Icon

Key points to remember

Metaverse is a rapidly growing technology, expected to generate attractive returns for investors. At this point, many well-known companies are entering the race to increase their market share in this field. METV offers a cost effective way to learn about this sector. The fund trades at more than 20x earnings in a market with high interest rates and high inflation, which makes the bullish idea risky in my view. I think long-term investors would be better off holding long-term call options rather than buying the underlying stock. Nevertheless, METV can be an excellent option for speculators hoping to take advantage of the volatility of the strategy in the near future.

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