Metaverse ETFs are the hot new thematic investment

The metaverse has officially hit the mainstream, with global assets now pouring into new exchange-traded funds that offer exposure to companies jockeying to create virtual realities. 

ETF assets focused on the metaverse have exploded to about $2.2 billion, according to Bloomberg, which is due in large part to the change in the name of Facebook’s parent company from Facebook Inc. to Meta Platforms Inc. in October, reflecting the growing relevance of these new virtual communities.

“If an investor believes that we're in the midst of a shift to a digital-first world, it would make sense that investments in the digital space have a chance to hold their value, and maybe increase in value over time,” said Treyton DeVore, co-founder of the fee-only financial planning firm AllStreet Wealth.

Most of the new exchange-traded products have launched in the past few months and they're quickly becoming a booming market for thematic investing. 

The Roundhill Ball Metaverse ETF (METV) is the industry leader, with about $856 million under management, according to Bloomberg research. In a burgeoning marketplace, METV cut management fees this month from 75 basis points to 59 bps, making it the cheapest fund available in the category.

The latest fund, the Subversive Metaverse ETF (PUNK) launched in January, focuses on companies both in the U.S. and overseas, and comes with an expense ratio of 75 bps. The actively managed fund looks for companies that have exposure to any of the seven layers of the metaverse: experience, discovery, creator economy, spatial computing, decentralization, human interface and infrastructure. 

“If a client came to me interested in [metaverse ETFs] and wanted to learn more or was considering adding them to their portfolio, we would evaluate the overall risk, the client's risk tolerance and the overall goal for the investment just like with traditional assets and make recommendations based on those results,” DeVore said.

The ETFs' top holdings include tech companies like Microsoft Corp. and gaming companies like Roblox Corp., among other firms, according to Bloomberg.

DeVore likens the new products to traditional real estate with a modern twist. 

“Sure, you can make money by investing in real estate,” he said, “but location plays a huge role. You have to do your due diligence, and you have to understand the heightened risks of alternative investments.”

As clients become more comfortable investing in digital assets, metaverse investments are increasingly attractive to early adopters. Revenue from virtual worlds could approach $400 billion by 2025, according to estimates by ARK Research. Bloomberg Intelligence expects the market opportunity for the metaverse to top $800 billion in the next two years.

“Investors of the future are going to have unlimited amounts of investment choices, and the adviser's job is to match investments to their risk tolerance, time horizon and personal preferences,” DeVore said. “We’re much closer to metaverse allocations than much of the industry may realize.”