The three top gambling and sports betting ETFs

Key points

• In recent years, more ETFs that focus on gambling stocks have been introduced.

• Here are three of the major gambling and betting focused ETFs.

• Is one of them a more preferable option?

Which is the best buy?

There’s an exchange-traded fund (ETF) for just about everything these days, including the gambling and sports betting industry.

The gambling industry in the U.S. has grown exponentially since the Supreme Court ruled in 2018 to allow states to permit sports betting. That coincided with the advancement of mobile technology, making betting easier and more accessible than ever through mobile apps.

Online sports betting alone is a $14 billion industry and it is expected to increase to $24 billion in five years – and that’s not counting casino gambling and other forms of betting.

While it is a growth industry, it is in many ways just in the fledgling stage. So, there are only three major ETFs that focus on sports betting, iGaming, and gambling.

Pacer Bluestar Digital Entertainment ETF

The Pacer Bluestar Digital Entertainment ETF (NASDAQ: ODDS) is one of the newcomers in this space, and it has been the top performer this year, up 29% year-to-date and 34% over the past one year.

This ETF tracks its own BlueStar Global Online Gambling, Video Gaming and eSports Index, which includes companies that generate at least 50% of their revenue from online gambling, video game development, or eSports. The rules-based strategy also requires stocks to meet certain market cap and trading volume screens. Stocks in the portfolio are split into two categories – online gambling companies and video gaming/esports companies.

It currently holds about 48 stocks, with Flutter Entertainment (NYSE:FLUT), which owns FanDuel, the largest holding, followed by DraftKings (NASDAQ: DKNG), and Tencent Holdings, which is listed on the HKSE.

It was launched in April of 2022, so it does not yet have a three-year track record, but its annualized return since inception is roughly 10.2%.

Roundhill Sports Betting & iGaming ETF

The Roundhill Sports Betting & iGaming ETF (NYSEARCA: BETZ) is another relative newcomer, having been launched in June of 2020. It has also had a good year, up roughly 17% YTD and 22% over the past 12 months. It is also the largest of the three, with about $80 million in assets under management.

This ETF is passively managed, tracking the Morningstar Sports Betting & iGaming Select Index. The index is designed to provide pure exposure to sports and online betting companies, as long as they meet certain screens. The sports betting companies must be engaged in analyzing sports events and wagering on the outcome. The iGaming companies must be engaged in betting online in games of chance, such as poker, slots, blackjack, or the lottery.

The portfolio currently holds 32 stocks, including the three largest holdings, Flutter Entertainment, DraftKings, and Sportradar Group AG (NASDAQ:SRAD).

The stock does have a three-year track record, during which has posted a -14% annualized return. Since inception it has returned 5.1% annually.

VanEck Gaming ETF

The VanEck Gaming ETF (NASDAQ: BJK) is the most established of the group, launching in 2008 as the first global gaming ETF. It has returned about 4% YTD and 11% over the past 12 months, as of November 22.

This ETF tracks the performance of the MVIS Global Gaming Index, which features companies involved in casinos and casino hotels, sports betting, lottery services, gaming services, gaming technology and gaming equipment. It has about $34 million in AUM.

It holds about 35 stocks with Flutter Entertainment, once again, the largest position. However, its second largest holding is Aristocrat Leisure, a gambling machine manufacturer based in Australia that trades on the Australian Securities Exchange. The third largest stock is VICI Properties (NYSE: VICI), a real estate investment trust that invests in casino and gaming properties.

Over the past five years, the ETF has recorded an annualized return of 3.1% and its 10-year annualized return is just 1.9%.

Which is the better buy?

If you are looking for exposure in the gambling industry, these three fit the bill, but all cover the industry differently.

Pacer has a major focus on sports betting but is diversified in tangential areas of eSports and video gaming. Roundhill is the most “pure play” of them all in sports betting and gambling, while Van Eck casts a wider net, including casinos, gaming manufacturers, lottery, and technology companies.

Where you invest depends on what you are looking for, as each has its benefits. The Pacer ETF has obviously been the top performer of the three but has a limited track record. Roundhill is the best option for investors that want the most direct exposure to online sports betting and gambling stocks, while VanEck is the most broadly diversified, but its returns have been lackluster.

When investing in industry-specific ETFs like these, it is important to keep in mind that they should only make up a small fraction of a larger portfolio