If Mark Zuckerburg is to be believed, we will soon hold all meetings as virtual avatars around virtual desks in the enterprising world of the metaverse.
Fund houses have sought to capture the growth in both companies directly capturing this wave and those likely to benefit indirectly through the launch of metaverse and metaverse-related funds.
Invesco, Fidelity International, Franklin Templeton and Legal & General Investment Management (LGIM) have all launched dedicated metaverse funds in the narrow window since the end of August this year, with all bar Invesco being ETF products.
Almost all of those unveiling new funds referenced the pivot traditional technology has made into the metaverse, as well as the fact investors are understanding the technology’s implications much better now.
French boutique Quantology is something of a pioneer here, having launched a Ucits-compliant metaverse equity fund in June 2021. This strategy was designed to capitalise on the blurring of lines between virtual, physical and augmented reality, as well as associated blockchain and AI-linked ideas.
However, it hasn’t been an easy ride for those already operating in this field.
According to Morningstar data, the France-domiciled fund has accrued just over €1m in assets since launch, while having lost 51% in US dollar terms over the 12 months to the end of August 2022. Meanwhile, its peer group, the Equity – Technology sector, registered an average decline of 31.7%.
Given the battery of challenges nascent industries usually face, along with the market upheaval of the first half of 2022, you would expect demand to falter, but this flurry of launches tells a different story.
It comes at a time when investors appear to have cooled on more crypto-centric ideas and instead are focusing on the long-term, structural future of technology.
So, where do fund buyers sit when it comes to metaverse-specific ideas? Daniele Sironi, head of wealth management at Hanson Asset Management in London, is a long-time fan of the concept.
‘I’ve been interested in the sector for a number of years,’ he told Citywire Selector via email. ‘I started following single names five or six years ago, then I looked at funds and ETFs.
‘With metaverse, I believe you need to focus on subsectors, which are: gaming; socialising (platforms providing content creators); enabling (such as tech infrastructures, cybersecurity and payment); and, working.’
For Sironi, metaverse strategies fit into a broader structural idea of long-term changes to human interaction, which he said would form an important part of thematic thinking in the future.
‘Usually, but except for large-caps such as Meta and Nvidia, companies tend to be at an early stage and the approach to the metaverse needs to be with a growth-style strategy.’
He is not alone, as Saar Kimel, head of financial products at Oppenheimer, said it is perhaps a part of the market that investors can’t afford to ignore.
‘VR is one of those techs that has been “around the corner” for a long time but the underlying tech has caught up with the dream to a great extent, and with Facebook keen to harvest ever more of our data, I imagine it’ll be pushing this hard.
‘My personal belief is any technology which makes communication between humans easier is likely to end up finding uses, and the pandemic has probably accelerated that,’ he added.
However, one fund buyer, who wished to remain anonymous, said the confluence of metaverse ideas with more trader-based cryptocurrency ideas meant caution was necessary.
‘Current market conditions aren’t the best for trying something so untested. We saw the rapid movements with the meme stock rallies and, while this is slightly different, there is an element of uncertainty.’
For those braving new ground, there is a split on the best way to approach it.
Sironi said the best way to access the market currently is through active managers, given the inefficiencies at play in many emergent parts of the industry.
‘I believe active managers with specific competencies can add value to the strategy, while ETFs end up being exposed to the larger companies and will dilute the tactical theme, as they are too closely related to technology ETFs in that regard.’
However, Kimel said the opposite was true: ‘Since we are talking about new areas of investment that require deep understanding and knowledge, together with the fact that there are not many products out there, at this stage, I would be looking at ETFs and less so at active managers.’