Metaverse: The internet we live in 

In July 2021, Mark Zuckerberg, the CEO of Facebook (FB), announced a shift from social media to the Metaverse. The transition is expected to take place over the next five years as Facebook rebrands itself into Meta. Whereas Meta is a Greek word that translates into beyond, the Metaverse represents a universe that transcends and goes beyond the physical world. 

Although it is still hard to define the Metaverse, it emphasizes a futuristic view of the web and embodies the internet we are inside rather than the internet we see. This immersive virtual universe will allow users to interact while facilitating a greater overlap between the digital and physical realms. Beyond portable computers and smartphones, virtual reality, augmented reality, and cyberspaces are expected to enhance users’ experience in the Metaverse while supporting productivity, various economic activities, socialization, and entertainment. The surge in sales of non-fungible tokens (NFT) and announcements from big players in the tech industry has increased interest in the Metaverse. According to a report by McKinsey, venture capital and private equity funds into the Metaverse reached USD$13 billion in 2021 alone.

A year has now passed since FB first announced the transition, and momentum is still building. Investment in the Metaverse space is more than double what it was in all of 2021. The value of the Metaverse is expected to reach USD$5 trillion by 2030, according to the same report.

Despite the spiking interest and clear demand, there is still a long way to go before the Metaverse’s full potential of being able to  "exist" fully immersed in the virtual world is reached. Nevertheless, the Metaverse landscape is starting to take shape, providing many opportunities for entrepreneurs and investors alike.

The Metaverse economy and risks

The Metaverse is not limited to tech companies, nor is it a gaming space. It is by itself a new virtual economy where large retailers like McDonald’s and Nike anticipate a world where users build a virtual life; they can shop, meet, attend concerts, visit attractions, deal with digital real estate, play games, and work. Almost any real-world economic or business activity that we can think of can be replicated in the Metaverse. 

However, just as with the internet today, cyberbullying, mental health issues, identity theft, ransomware attacks, unauthorized data collection, deepfakes, and social engineering attacks are inherent risks, and security issues must be addressed. 

On the investment level, since the Metaverse is in its infancy, most businesses have no clear path to profitability; every stakeholder is scrambling to strike gold first. It isn’t clear what companies will be successful, as with most new technologies, only a few players will succeed.

Investment opportunities

Investors who are bullish or seeking exposure to the Metaverse can directly invest in and purchase virtual real estate. This comes with the assumption that buying these assets will grow in popularity, facilitating their sale at a higher value. Similarly, investors can trade cryptocurrencies, NFTs, and other digital assets. 

Alternatively, investors can indirectly gain exposure to the Metaverse by purchasing stocks of companies involved in at least one or more aspects of the virtual universe as an equity investment. They can also buy shares in Metaverse mutual funds that hold shares of companies with business activities in the space. 

Likewise, Metaverse exchange-traded funds allow investors to overcome the complexities of picking individual Metaverse securities. They provide investors with an easy and convenient way to gain exposure to the virtual universe. They bundle different Metaverse stocks together in a single basket, trading on national and international stock exchanges under a ticker symbol. 

List of Metaverse ETFs

Trackinsight has developed a proprietary Thematic Investing classification that is structured based on 3-tiers. This taxonomy facilitates ETF research using a transparent framework. The three-tiered methodology maps each ETF against 5 Megatrends, 12 Trends and 68 Themes. Metaverse ETFs aim to isolate a niche market segment and narrow down the focus to a specific theme; this case is ‘Next Generation Internet.’ 

The theme belongs to the ‘Digital Infrastructure and Connectivity’ trend, which captures the investment opportunity in any of these four megatrends: Technology Innovation, Rising Urbanization, Environmental Changes, and Demographic Shifts.

Trackinsight's Thematic ETF Screener identifies 28 ‘Next Generation Internet’ ETFs available to investors. Of these, there are thirteen Metaverse ETFs with assets under management reaching USD$574 million[1].

Below is a breakdown of the two largest Metaverse ETFs available to investors.

Roundhill Ball Metaverse ETF (METV)

The Roundhill Ball Metaverse ETF (METV) is the oldest ETF tracking Metaverse securities. The fund’s ticker changed from META to METV, effective upon the opening of trading on January 31st. It celebrates its first anniversary at the end of the month, having been introduced to the market on June 30th, 2021. METV is by far the largest amongst its siblings, managing USD$518 million – a total of 90.30% of total assets under management in the space. It is a passively managed fund designed to track the performance of the Ball Metaverse Index. The fund provides exposure to companies actively involved in the Metaverse, more specifically companies providing computing power, real-time connections, virtual platforms and three-dimensional simulations, payments, content, and hardware. METV is suitable for American investors with a home bias investing 81.5%[2]of its holdings in the United States, with the remaining assets spread across six countries. It is highly concentrated in large-cap companies with over USD$10 billion in market capitalization. METV invests 19.70% in Gaming Platforms, 18.70% in Computing Components, 16.00% in Cloud Solutions, 14.30% in Social Networks, and 31.40% in other segments of the Metaverse space. The ETF is highly diversified, spreading its assets across 43 holdings, with the top 5 totaling 38.53% of the total portfolio. They include companies developing infrastructure essential to the Metaverse, such as Nvidia and gaming engines responsible for the creation of virtual worlds, including Unity and Roblox. METV costs 0.75% to own per year while following a distributing dividend policy where it distributes income generated (if any) to shareholders. 

Fidelity Metaverse ETF (FMET)

Fidelity Metaverse ETF is the second-largest Metaverse ETF, holding USD$10 million of assets under management. FMET was launched on April 19th, 2022, aiming to track the performance of the Fidelity Metaverse Index. The index is designed to reflect the performance of a global universe of companies that develop, manufacture, distribute, or sell products or services related to establishing and enabling the Metaverse. Under normal conditions, the fund invests at least 80% of its assets in securities included in the index and depositary receipts representing securities included in the index. FMET is globally diversified, holding 45.58%[3] of its portfolio in the United States, 16.86% in China, 14.07% in Japan, 11.78% in South Korea, 4.78% in France, and the remainder across four countries in Oceania, Asia, and Europe. The fund is tilted toward large companies with 65.28% in large-cap, 24.96% in mid-cap, 8.94% in small-cap, and 0.82% in micro-cap. On the industry level, the fund holds 35.06% of the total portfolio in the Entertainment industry, 23.40% in Interactive Media and Services, 15.11% in Software, and 7.01% in Semiconductors and Semiconductor Equipment. FMET is cheaper than METV, costing 0.39% a year to own versus 0.75%. Similar to METV, the fund distributes its generated income to its shareholders.

Top 5 Performing Metaverse ETFs (year-to-date)

• Global X Metaverse ETF (VR): -6.23%
• First Trust Indxx Metaverse ETF (ARVR): -8.19%
• Fidelity Metaverse ETF (FMET): -12.39%
• ProShares Metaverse ETF (VERS): -17.79%
• ETC Group Global Metaverse UCITS ETF (METR): -19.08%

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[1] Data as of June 24th, 2022.

[2] METV data as of June 27th, 2022.

[3] FMET data as of May 31st, 2022.