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Metaverse

Metaverse emerges as promising yet uncertain new world for investors

Exchange-traded funds have sprung up to cater to growing appetite for metaverse investments

By The Wall Street Journal Dec 03, 2021 (Gmt+09:00)

Metaverse emerges as promising yet uncertain new world for investors

Virtual realms known as the metaverse that have become the hot topic for tech companies also are winning a new fan base among investors.

SoftBank Group Corp. on Tuesday said it was investing $150 million in a South Korean metaverse platform. A cadre of metaverse-themed, exchange-traded funds have launched in recent months—some showing gains. Shares have also surged in companies making early bets on what some tech executives have described as the next phase of the internet, while others say it is a hyped vision that will take years to realize.

Metaverse emerges as promising yet uncertain new world for investors

“As the physical world integrates with the digital world at an accelerated pace, we want to be invested in companies that are best positioned to capitalize from this digital transformation,” said Frank Balas, director of investment strategy at the GM Advisory Group, which has invested in a metaverse-focused fund.

Metaverse emerges as promising yet uncertain new world for investors

Mark Zuckerberg said in October that Facebook Inc. was being rebranded as Meta Platforms Inc. and that the company was pouring billions of dollars into developing the online world. Metaverse-related businesses drew increased investments in ensuing weeks.

The metaverse is loosely defined as an online world where individuals can participate in immersive experiences like virtual concerts, purchase digital goods and hang out with each other as avatars, in some cases using virtual and augmented-reality headsets. Tech companies like Microsoft Corp. and Nvidia Corp. have announced plans to develop metaverse platforms or the tools to help create those spaces.

Consumer-goods companies including Chipotle Mexican Grill Inc., Verizon Communications Inc. and Nike Inc. are also buying into the metaverse’s potential. It is also sparked a digital real-estate boom.

Sonu Kalra, a portfolio manager at Fidelity Investments, called the metaverse another avenue of growth that gives added reason to invest in successful tech names. The BlueChip Growth Fund he manages has holdings in companies like Nvidia, Meta and Microsoft.

But he also urges caution, suggesting that in many cases the jury is out on what the concrete business opportunities for companies will be. “I think it’s very easy to get caught up in the hype of the metaverse, but what does it really mean in terms of cash flows to businesses at the end of the day?” he said.

Doubts aside, enthusiasts have been promoting new funds to capitalize on the metaverse zeal. On the day of Mr. Zuckerberg’s Meta name-change announcement, Fount Investment Co. Ltd. launched a metaverse ETF that has since grown to more than $8 million in net assets. Metaverse-themed ETFs have also launched in South Korea and Canada.

“Investors are excited about the theme,” said Matthew Ball, a venture capitalist who teamed up with investment firm Roundhill Financial Inc. in June to launch a fund known as META ETF.

It has grown to more than $800 million in assets and was up roughly 11% at its peak about two weeks ago, rallying in the wake of Mr. Zuckerberg’s announcements, before retreating in recent days in a widespread market selloff amid concerns about the Omicron Covid-19 variant.

The META ETF holds around 40 stocks, including videogame company Roblox Corp., chip companies Intel Corp. and Nvidia, and tech giants Microsoft and Apple Inc. Mr. Ball says that ultimately the metaverse will represent 10% to 20% of the world economy.

Shares in individual companies also enjoyed a boost from the growing interest in the metaverse. Many of the investments have been into larger tech companies that already have seen pandemic-era bumps. Shares in Meta rose roughly 11% after its rebranding before the Omicron selloff hit. Roblox and Unity Software Inc. had logged double-digit gains that also came after they posted strong earnings last month.

Lesser-known companies like Matterport Inc., a software provider that helps businesses digitize the physical world, and Glimpse Group Inc., a virtual- and augmented-reality platform company, advanced even more following the Meta announcement. Matterport shares rose roughly 80%. Glimpse’s stock advanced about 76% before the selloff. The Nasdaq was up about 5% over that period, and is roughly up 1% through Thursday’s close.

Dave Egan, a senior research analyst at money-management firm Columbia Threadneedle Investments, says he is bullish particularly on the chip industry and what he calls “picks-and-shovels” companies—the ones that build the tools being used to create the metaverse.

Those investments, he says, are less risky than those into companies catering more to creating consumer experiences whose potential returns are harder to pin down and track. “We want to make bets—no doubt about that,” Mr. Egan said. “But we also don’t want to throw money away.”

Shares of graphics-chip maker Nvidia are up more than 30% since Meta unveiled its investment plans. Nvidia Chief Executive Jensen Huang last month outlined near-term opportunities in hardware and software sales from the metaverse as the company posted bumper quarterly results. “This is really going to be one of the largest graphics opportunities that we’ve ever seen,” Mr. Huang said.

Write to Meghan Bobrowsky at Meghan.Bobrowsky@wsj.com

 
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