Fidelity Metaverse

Fidelity joins swelling metaverse throng

Asset management giant Fidelity has joined the growing number of global fund managers launching metaverse ETFs.

The simply-named Fidelity Metaverse ETF (FMET) is self-indexed, and tracks the Fidelity Metaverse Index. The index is made of global companies that make or sell metaverse-related products.

Metaverse-related is defined in a broad way and includes companies must more than half their revenue from the following categories:

(i)                  computing hardware,

(ii)                digital infrastructure,

(iii)               design & engineering software,

(iv)               gaming technology and software,

(v)                web development and content services

(vi)               smart phone and wearable technology

Companies’ revenue within these categories is judged based on keyword searches.

In addition to revenue purity, the index uses a quality screen. The screen looks at revenue growth, free cash flow, and analyst coverage. Companies lacking in any of these are removed.

Companies that pass through both screens are market weighted subject to a 4.5% cap on the biggest stocks. The fund charges 0.39%. The top 10 holdings are below.

Bernie’s commentary – FANGs + video games.

The biggest criticism of the metaverse thematic within tech circles has been that it’s “vapourware”. That is, it’s just a concept or idea – with no clear or concrete substance behind it. Among the major semiconductor giants, which are in many respects the bellwether tech companies (advancements in technology require advancements in the microchips underpinning them), the only company that has put any emphasis behind it is Nvidia.

This criticism is not entirely fair. There are pureplay metaverse software companies coming online via SPACs. However this ETF is sure to exclude them thanks to its quality screen, which emphasises analyst coverage and free cash flow.

Another line of criticism has been that the theme is real. But that the winners will just be the FANGs and the video games developers all over again. (The FANGs make a lot of money from video games). Currently we are hearing the loudest yelps for the metaverse from the video games industry—which includes Nvidia above. And you can see why. Playing video games with headsets and in 3D would be wild fun. And gamers are some of the biggest spenders on discretionary tech. And of course, video games developers are some of the biggest constituents in this index.

And on this criticism, you’d have to say this ETF concurs. FMET’s basket is mostly just the FANGs and the video games developers.