METV: Metaverse offers options for technical stocks

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Investment dissertation

Roundhill Ball Metaverse ETF (NYSEARC: METV) is designed to give investors exposure to Metaverse. New technologies such as virtual reality and game engines allow the meta-verse to take shape and grow as it goes. they seek to expand the possibilities of a virtual world.

Based on data from Bloomberg Intelligence and Ark Invest, Metaverse is expected to be one of the fastest growing technology segments and will more than double in 2025. Despite the exciting prospects, I believe the market continues to evolve and it is difficult to choose the winners correctly. now. If we look at the valuation of the entire portfolio, I think many components are overvalued, and long-term investors would be better off with long buy options than buying the underlying stock. That said, METV may be a good choice for speculators looking to capitalize on the volatility of the short-term strategy.

Roundhill Investments

Roundhill Investments

Policy details

Roundhill Ball Metaverse ETF follows the Ball Metaverse Index. The strategy aims to gain exposure to the meta-verse, which can be characterized as a replacement for the current internet that provides an experience that connects the virtual and the real world. This includes companies involved in computers, networks, virtual platforms, exchange standards and payments.

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

Composition of the portfolio

From the sector allocation table below, we can see that the fund rates companies offering gaming platforms (~ 20%), followed by computer component vendors (~ 19%) and companies developing cloud solutions (16%). In total, the first 3 sectors represent ~ 55% of the fund’s total assets. In terms of geographical distribution, almost ~ 81% of the fund is invested in the United States, followed by Singapore (~ 4.6%) and South Korea (~ 4%).

METV

METV fact sheet

METV invests approx. 46% of its funds in growth stocks with large companies, characterized as large companies, where growth factors dominate. Large-cap companies are generally categorized as companies with a market value of more than $ 10 billion. The second largest allocation consists of large mixed shares, which account for 25% of total assets. Interestingly, METV invests about 66% of its funds in growth stocks, which are generally more volatile than value stocks. At the same time, small cap issuers are underrepresented due to their low weighting. Some investors prefer higher exposure to small and mid caps because of their potential to outperform large caps over a long period of time.

the morning star

the morning star

The fund is currently invested in ~ 43 different stocks. The top 10 stocks represent ~ 44% of the portfolio, and no stock weighs more than ~ 9%. In my opinion, METV is pretty well diversified as I think there are a limited number of companies in this niche at the moment.

METV fact sheet

METV fact sheet

As these are equities, an important feature is the valuation of the portfolio. According to Morningstar data, the fund is currently trading at a price-to-book ratio of around 5 and an average price-to-earnings ratio of around 23. After looking at the voter list, I can say that these companies are among the largest companies in the world and clearly has a gap. While some of them are attractively priced, such as Meta Platforms Inc. (FB), most of the portfolio looks overvalued. Moreover, a higher interest rate in developed markets clearly does not bode well for high PE stocks, making the bullish thesis risky in my opinion.

Is this ETF right for me?

Below, I compared the price evolution of METV with the Invesco QQQ ETF (NYSEARCA: QQQ) over the past 9 months to determine which investment was the best. During this period, QQQ outperformed BOTZ by more than about 23 percentage points. To put METV’s performance in perspective, a $ 100 investment in this ETF would initially be worth around $ 73.94, which is a terribly relative and absolute return.

As we do not yet have much data on METV, I think it is difficult to assess the fund’s results over a long period of time. That said, I think the last few months have offered some insight into the seriousness of the fall of METV, both from an absolute and relative perspective, which makes me wonder how unstable this strategy will be in the future.

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

Refinitive Icon

Refinitive Icon

Key points to remember

Metaverse is a fast growing technology that is 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 niche. METV offers a cost-effective way to gain exposure for this sector. The fund trades at over 20x earnings in a market with rising interest rates and high inflation, making the bullish thesis risky in my opinion. I think long-term investors would be better off with long-term call options instead of buying the underlying stock. However, METV could be an excellent choice for speculators hoping to capitalize on the volatility of the strategy in the near future.

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