The Pre-Thanksgiving Profit taking is hitting a lot of digital stocks this week, with some of the themes we follow like Digitalisation and Digital Health in particular getting hard hit, while it is also worth noting that the three Tech stocks likely to become Financial stocks that we mentioned last week (Paypal, Mastercard and Visa) all continue to be falling heavily out of favour. Indeed we wonder if there might be a large Tech fund or two in trouble, perhaps facing some forced redemptions. Certainly the Morgan Stanley Most Crowded Trades Index has had a bad week (-5%) and an even worse November overall. Taking some steam out of a number of the tech names is no bad thing however, and offers the opportunity to think about taking some positions in (at least slightly) cheaper names as we look to construct portfolios for 2022.
Last week we mentioned a potential addition to our Thematic Basket of Funds, one that tracked a Fintech index, while we are also not alone in thinking about how, if possible we can start to approach the whole MetaVerse concept via some form of ETF to incorporate into our portfolios in general. In Portfolio construction terms, can we Build Back Meta? As with buying into BitCoin via things like the Grayscale Bitcoin Investment Trust , or its Ethereum Equivalent, the world of Thematic ETFs is already trying to come up with new ways to invest. One place to start might be with the guys behind the Roundhill Ball Metaverse ETF, who must be feeling pleased that they launched their Metaverse ETF back in June with the ticker symbol META, especially now that Mr Zuckerberg has renamed his business after their ticker symbol. As the lower volume chart shows, this has attracted significant volume into their ETF.
The ETF itself is interesting in that, according to its literature, it is designed to track the performance of the Ball Metaverse index, produced basically by themselves. While at first this might sound like marking your own homework, what is useful and interesting is the approach it takes to thematic investing of weighting the component companies according to the expected contribution to their revenues from exposure to the Metaverse. META therefore consists of companies actively involved in the Metaverse which includes compute, networking, virtual platforms, hardware, digital assets, and payments.
The Index is said to be maintained by an Expert Council whose expert knowledge reflects the range of relevant sectors. It is not exactly clear who is on the council, but it would certainly include Matthew Ball, who has written (very) extensively on the whole subject over the last three years, including a 33,000 word ‘Primer’ on the Metaverse. In it, he gives as good a definition as we have seen so far
“The Metaverse is a massively scaled and interoperable network of real-time rendered 3D virtual worlds which can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.”
MATTHEW BALL, FRAMEWORK FOR THE METAVERSE
Following this definition then, we can see a basket of stocks, with the top 10 looking as follows.
Naturally there is a bias towards the ‘obvious’ names and while we acknowledge the rationale behind the weightings from a Technology perspective, from the perspective of building portfolios, we would be somewhat wary of having more than 20% in two stocks and more than 50% in the top 10. This, of course, is one of the problems of ‘new’ themes, so many of the likely winners are still relatively small and illiquid. There is a full list here and, perhaps not surprisingly, many of them have done very well year to date (albeit some have caught caught up a little in the tech selloff).
There is also the issue that many of the companies involved are not (yet) quoted, the most obvious perhaps being EPIC games, the people behind Fortnite. As an example of how advanced their software is, it is worth having a look at the power of the Unreal Engine, their software for making MetaHumans. EPIC are not quoted (although Tencent have a 40% stake).
Making Realistic Digital Humans with MetaHuman Creator | Unreal Engine – YouTube
A Realistic Digital Human (not a photo of a real one)
Of course, what is most likely is that the way to invest in the MetaVerse will be through the tools of the MetaVerse itself , which, naturally, brings us back to Coins. We will return to that in another post.
