Roundhill Financial Inc. has announced that it will modify the underlying index of the Roundhill Sports Betting and iGaming ETF, an exchange-traded fund the investment adviser designed to track the stock performance of the sports betting and iGaming industries.
Effective at the close of trading Sept. 29, the fund (symbol BETZ) will begin tracking the Morningstar Sports Betting & iGaming Select Index, the companies explained in a statement. As with the current index, the new index is designed to provide targeted exposure to stocks in both industries. Morningstar Inc. created and will maintain the new fund.
Over the last several months, Roundhill has been working with Morningstar on the new index. Ultimately, Roundhill believes that Morningstar’s research capabilities, including a dedicated gaming sector analyst in Dan Wasiolek, will allow for the ETF to best track the online gaming sector, said Will Hershey, who serves as CEO of Roundhill Investments.
The new fund will begin trading on Oct. 2, tracking the new index. As of Sept. 18, the fund had about $105 million in assets under management (AUM).
“We also believe that the new index is institutional quality, and are targeting institutional investors for BETZ, as the fund now has a track record and meaningful AUM,” Hershey told Sports Handle. “In terms of the underlying holdings, we expect there to be relatively minimal turnover, at least initially.”
Rebounding from a challenging 2022
Launched near the height of the COVID-19 pandemic, the ETF debuted in June 2020 around $15 a share. By the following April, BETZ more than doubled to $32.65, hitting an all-time high. The upward trajectory underscored the considerable demand for online gambling at the time, as bettors mostly remained at home during the peak of the pandemic.
Pummeled, however, by a period of unprecedented global inflation, the fund struggled last year. The ETF closed 2022 at $14.31, down about 45% on the year. A host of major names in the sports betting industry suffered sharp losses, as the companies retreated in line with other growth stocks. DraftKings, for instance, plummeted about 80% from its peak.
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Despite continued robust industry growth, shares of U.S. sportsbook operators have declined meaningfully across the board in 2022.
As major sports betting companies have reined in a period of aggressive spending, the fund has rebounded over the first nine months of 2023. From Sept. 1, 2022, until Sept. 1, 2023, shares in DraftKings and Flutter Entertainment — the parent company of FanDuel — have risen about 175% and 25%, respectively. As a result, BETZ has jumped approximately 13% over the period.
Data from an American Gaming Association survey predicts that about 73.5 million Americans will place a wager on the NFL at some point during this season. The AGA also forecasts that roughly 2.7 times more adults will place a bet during the fall and winter compared with the same period 12 months earlier.
A volatile period of consolidation across the industry has also impacted the composition of the fund.
Over the past 18 months, a number of mid-sized operators such as Fubo Sportsbook, Maxim BET, and Churchill Downs have shuttered their sports betting operations. More recently, Wynn closed its online gaming division in nearly a dozen states. The shutdowns align with forecasts from numerous analysts that, moving forward, betting volume will be highly concentrated among six top operators: FanDuel, DraftKings, BetMGM, Caesars Sportsbook, Fanatics, and ESPN BET.
As of Sept. 18, five companies in the fund each represented at least 5% of the underlying basket, led by DraftKings, with a portfolio holding of about 6.46%. Sports betting operators comprised about 39% of the index in June, with iGaming-related companies next at 20.5%.
At the time, stocks with an online gaming bent occupied an equal weighting with casino stocks. Two major casino stocks, MGM Resorts International and Caesars Entertainment, have retreated over the last week amid a massive cybersecurity breach.
Since its inception, BETZ has produced returns of approximately 4.5%. Headquartered in Chicago, Morningstar describes itself as a leading provider of independent investment insights. A recent Morningstar study found that the asset-weighted average expense ratio of U.S. mutual funds and ETFs fell 0.03% to 0.37% in 2022. The decline resulted in investor savings of approximately $9.8 billion, according to Morningstar.