The new BlackRock Metaverse ETF

BlackRock has launched a new Metaverse-focused ETF.

BlackRock has launched a new ETF focused on the Metaverse. How closely does it really map to the Metaverse?

BlackRock's ETF subsidiary iShares has launched their new iShares Future Metaverse Tech and Communications ETF (ticker: MSGMVSNU). As the name suggests, the ETF is intended to participate in the "internet of the future" that also implies future value creation within the Metaverse. But looking at the holdings in the fund, it’s clear it’s only the usual stock companies you’d find in any fund claiming to do something with future tech.

BlackRock: 08/15 mix with a new label

Since there are virtually no pure-play metaverse exchange traded companies, the ETF is far from Pure Play. "Pure play" means a company whose main business goal is in the right industry.

The ETF can only invest in stocks and not in cryptocurrencies, which means a big part of the space is missing. But even among the stock holdings, there’s more whim. Gaming names like Roblox or Take-Two Interactive show up in the fund, as do Apple, Zoom, or Salesforce.

Sure, all of these companies touch on virtual reality, gaming worlds, or hardware components. Still, the fund is a symbol for an industry that’s hard to represent.

ETFs: Always look at what’s inside

Investors should always take a close look at what’s in a so-called thematic ETF. Just because it lists blockchain, metaverse, robotics, or autonomous driving doesn’t mean it’s actually in there.

ETF issuers don’t have the ability to set up targeted ETFs on some topics, especially the metaverse. After all, the truly innovative companies in a new space are usually not publicly traded. Instead, it’s venture capitalists funding the players of tomorrow.

Diversification: you can overdo it too!

Thematic ETFs are often forced to diversify enough. That means there might only be four truly suitable stocks identified in a given sector. Because that’s not enough, managers artificially populate indices with unsuitable stocks. The result is a mix of stocks that somehow always seem to fit.

That’s why almost every tech ETF includes big tech heavyweights like Microsoft, Tencent, or Nvidia. This also holds for the BlackRock Metaverse ETF, which currently has 39 positions.

For investors interested in specific themes, it may be more meaningful to focus on targeted stock picking and build a pure-play selection for themselves. So instead of buying the over-diversified 3D printing or metaverse ETF, it might be smart to pick four to six sector favorites.

Read also: Bitcoin: Another futures ETF launched