Bad Beat: The Case for the Gambling ETF
Given the growth of gambling globally, the long-term prospects of a gambling ETF could be promising.
Global gambling revenue jumped to $419 billion last year from $397 billion in 2010 and it is forecast to reach $448 billion in 2012, according to Bloomberg. In other words, more money will be spent on gambling across the globe this year than the economic output of developed countries such as Austria and Denmark.
Global gaming revenue in 2012 could also be roughly 33% larger than Greece's 2011 GDP. With that, it can be argued that it's odd that there's just one ETF devoted to the gambling industry: The Market Vectors Gaming ETF (BJK).
Robust liquidity is present in most US casino stocks. Home to almost $74 million in assets under management, the Market Vectors Gaming ETF devotes over 22% of its weight to Las Vegas Sands (LVS) and Wynn Resorts (WYNN). That may deceive investors into thinking this is a domestic-focused fund. In fact, it is not. Nearly two-thirds of the Market Vectors Gaming ETF's country weight is ex-US and the fund is uniquely positioned to profit from the global gambling boom.
"We believe that it is important for a gaming index to have exposure to international markets, especially those that are experiencing rapid growth, such as Macau, Singapore, and Vietnam," Wells Gaming Research President Richard Wells told Benzinga in an interview. "Singapore and Vietnam are emerging markets with significant growth. We believe that the Philippine and other Asian countries will also be moving to develop destination casino resort facilities."
Statistics prove Asia is the place to be for casino operators. Macau, the only Chinese territory where gambling is legal, is the world's top gambling destination by revenue. Singapore is second. China accounts for 20.2% of Market Vectors Gaming ETF's weight and several other Asian nations represent another 14% of the fund's overall country allocations.
While the Market Vectors Gaming ETF has struggled in recent weeks as global markets have fretted over lingering concerns regarding Europe's sovereign debt crisis (among other macroeconomic issues), the fund is still up almost 17% year-to-date and more than 4% over the past year.
Even with those bullish statistics, an environment that has generally been risk off in nature has impacted the Market Vectors Gaming ETF.
"Year-to-date, as well as for the one year period, the Market Vectors Gaming ETF shares outstanding have decreased, which we believe can be primarily attributed to the general risk-off actions of investors associated with a high level of uncertainty in the global market," Brandon Rakszawski, Market Manager for Market Vectors, told Benzinga.
For now, it's reasonable to say the Market Vectors Gaming ETF and its constituents will be held hostage by the risk-off trade, but that does not diminish the ETF's long-term prospects. As Wells noted, both major Singapore casinos are represented in the ETF and MGM Resorts (MGM) and Pinnacle Entertainment (PNK), two Market Vectors Gaming ETF holdings, each have footprints in the fast-growing Vietnam market.
The chart isn't attractive at the moment, but if the Market Vectors Gaming ETF comes down to the $32-$33, that could be the area to put some chips down on the Market Vectors Gaming ETF in anticipation of a return to $36 later this year.
Editor's Note: This content was originally published on Benzinga.com by The ETF Professor.
Below, find some more great ETF and market content from Benzinga:
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