Few investment opportunities in Canada

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The Metaverse industry is relatively nascent and there are few investment opportunities in Canada. Because the world’s leading companies in this sector are located in the United States or elsewhere in the world, some Canadian exchange-traded funds (ETFs) provide exposure to baskets of international securities.

The two “oldest” are the Horizons Global Metaverse Index ETF (MTAV, $17.83) and the Evolve Metaverse ETF (MESH, $6.33). Two others appeared in Canadian markets in May: the Fidelity Total Metavers Index ETF (FMTV, $10.27) and the CI Galaxy Metavers ETF (CMVX, $20.00).

“By investing in a Canadian ETF on the Metaverse, investors can avoid currency conversion issues and make tax filing a lot easier,” said Kaitlin Thomson, vice president of product strategy at Evolve.

Evolve is also the only issuer that has chosen to actively manage its Metaverse-targeted ETF, while the other three track the performance of a benchmark index.

“We think the metaverse is too new a concept to rely on as an index that can miscategorize companies,” she says. The Evolve ETF offers a basket of 28 large-cap stocks, mostly from the US (75.6%) and China (13.5%).

In her opinion, companies should be divided into three categories: those that create virtual environments, such as Meta-Platforms (META, $195.65), Microsoft (MSFT, $272.50), Roblox (RBLX, 31 $.44) and Activision Blizzard (ATVI, $78.03), those designing software to create tools for creating the metaverse, such as Autodesk (ADSK, $207.17) and Unity Software (U, $44.32), and those designing hardware to use virtual reality and augmented reality, another category where meta-platforms excel.

Kaitlin Thomson explains that after selecting the companies that will help create the metaverse, Evolve decides to manage its portfolio more index-based and rebalances all stocks to the same weighting at the end of each quarter.

At Horizons, we have opted for passive management, linked to the performance of the Solactive Global Metaverse Index, which includes 50 companies with a maximum weighting of 5% per security and automatic rebalancing at the end of each quarter.

“The Index strives for global presence and seeks to identify current and future leaders in the Metaverse industry through machine learning. At the moment we have a large exposure to the American market (78.1%). If we find the leaders there, we will invest there. In two or three years, that profile could change,” said Marie-Chantal Lauzon, senior vice president of business development at Horizons Canada.

The latter claims that Horizons’ ETF on the Metaverse appeals to investors who can bet for the long term and can tolerate the stock market’s inherent volatility. “We specifically target those who believe the metaverse will disrupt technology in our daily lives,” she says.

The CI Galaxy ETF tracks the performance of the Alerian Galaxy Immersive Digital Worlds Hedged to Canadian Dollars Index, while the Fidelity ETF attempts to track the Fidelity Canada Metavers Total Index. The latter two are too recent to provide complete information about their stock picks.

A topic with great potential, but…

“The Metaverse is a very macro issue that will determine how people will interact with the internet in the future. It’s huge as an investment thesis, but it remains to be seen when and to what extent the phenomenon will gain momentum,” believes iA Financial Group’s Chief Strategist and Senior Economist Sébastien McMahon.

According to him, the metaverse will slowly and steadily evolve until a very popular application is released and entices early adopters to take the plunge. “Remember the launch of Apple’s iPhone (AAPL, $148.80) in 2007. It was apps like Angry Birds that drove demand because a lot of people wanted to play. Eventually there will be such an application in the Metaverse and it will take off,” he said.

Sébastien McMahon believes that the entertainment industry will lead the parade, especially the world of immersive games, without neglecting the fashion industry. He believes that there is a market for virtual worlds where, for example, it will be possible to create an avatar and pay for special virtual designer clothes.

Kaitlin Thomson also argues that the video game industry will be an important part of the metaverse, but that the technology has the potential to disrupt many industries like education: “Right now, in history class, students are reading books. But what would happen if they could put on a virtual reality helmet to transport themselves back in time to visit the Pyramids of Egypt, for example? The teaching experience would be really different,” she says.

She also believes the technology could revolutionize the way concerts are hosted online, as well as visiting virtual houses in particular.

EXPERT TIPS
Target those who help create metaverses

Sébastien McMahon, Chief Strategist and Senior Economist, iA Financial Group (Photo: courtesy)

“The definition of the metaverse has not yet been determined. We’re not investing in the Metaverse yet. We invest in companies that are contributing to the creation of the metaverse or that will be well placed to do so. But the interesting part of the curve doesn’t exist yet.

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