METV - METV: Sell The Metaverse

Summary

• The Roundhill Ball Metaverse ETF (METV) is designed to offer investors exposure to the Metaverse by investing in companies that are set to benefit from its development.
• METV holds a number of Large Cap/Growth-oriented stocks, with an emphasis on Meta, Nvidia, and Roblox.
• The fund's performance is closely correlated with the ARKK ETF in the past year.
• This fund is ultimately a high beta Technology play.
• We are of the opinion rates are going to be higher for longer, and the short squeeze in high beta Tech names is going to reverse.

Thesis

Roundhill Ball Metaverse ( METV ) is an exchange traded fund. The vehicle's investment mantra centers around the success of the Metaverse:

The Roundhill Ball Metaverse ETF ("METV ETF") is designed to offer investors exposure to the Metaverse by providing investment results that closely correspond, before fees and expenses, to the performance of the Ball Metaverse Index. The Ball Metaverse Index is the first index globally designed to track the performance of the Metaverse. The Index consists of a tiered weight portfolio of globally listed companies who are actively involved in the Metaverse. Companies selected are deemed by the Index Provider to be actively involved in the metaverse or expected to be involved or benefit from future developments in the metaverse.

For those readers who are not tech savvy, let us have a look at what the Metaverse actually is:

The metaverse is a vision of what many in the computer industry believe is the next iteration of the internet: a single, shared, immersive, persistent, 3D virtual space where humans experience life in ways they could not in the physical world.

Some of the technologies that provide access to this virtual world, such as virtual reality ((VR)) headsets and augmented reality ((AR)) glasses, are evolving quickly; other critical components of the metaverse, such as adequate bandwidth or interoperability standards, are probably years off or might never materialize.

Source: tech target

The company formerly known as Facebook, now called Meta ( META ) has bet a substantial amount of cash towards the development of the Metaverse. At the end of the day, without getting into the details of each applicable key performance indicator for this new endeavor, let us frame this concept - some investors and companies believe the Metaverse is a successor of the Internet, and have spent a substantial amount of cash to take advantage of that view. METV is a bet via an exchange traded fund on the Metaverse ecosystem:

The top names in this fund represent either large tech companies with an involvement in the metaverse or semiconductor companies that are set to benefit if the necessary increase in computing power materializes.

METV is ultimately a high beta technology play, that has seen a monster performance so far in 2023 on the back of a short squeeze in many oversold names. The market is now pricing an ' immaculate disinflation ' and soft landing, where inflation is set to fall and the Fed will cut rates twice in 2023. In such an environment animal spirits are back, betting again that the 2020/2021 darlings are going to be back in vogue.

Valuations have not fully re-set yet and the bear cycle is not over. We are of the opinion that inflation is going to be stickier than predicted and rates are going to be higher for longer. This will ultimately result in tech re-setting lower from a P/E standpoint. Tech valuations aside, it is worth mentioning that the Metaverse itself is yet to make any money , with substantial losses incurred so far by former Facebook (now Meta).

Time will tell if the Metaverse will be the new internet. In 5 to 10 years who knows, maybe. In 6 months to 1 year, most definitely not. METV is for 2023 a high beta Tech play that has rallied too much and is yet to form a bottom in the new rates environment.

Performance

The fund has seen a very high correlation in its performance with ARKK in the past year:

Since inception, the fund's performance is in the middle of the cohort when comparing with ARKK and QQQ:

Holdings

When parsing out the sectors in this fund we get the following composition:

Most of the companies held are Large Cap equities which fall in the Growth category:

Conclusion

The Roundhill Ball Metaverse ETF is designed to offer investors exposure to the Metaverse by holding Tech companies closely correlated with the Metaverse effort. The fund has Meta, Nvidia and Roblox as its top holdings, and ultimately represents a Large Cap / Growth Tech fund. The vehicle's results have been closely correlated with the ARKK ETF in the past year. We view METV as a high beta technology play, and its +18% return in 2023 reflects the closing out of many short positions in the tech sector. Rates are set to remain higher for longer, and we are not going to see a "v" shaped recovery in tech. In terms of the Metaverse itself, we are far away from seeing wide adoption or break-evens in the space, with Meta still losing a significant amount of cash in its development. For the next year METV is not going to be driven by the Metaverse, but by its high beta tech nature. Coming from oversold technical levels the fund has rallied substantially in 2023 but it is set to resume its downward path shortly.

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