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Metaverse Spotlight

Investing in the Metaverse: What You Need to Know 

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What You Need to Know

  • The metaverse is about giving users an immersive experience beyond the capabilities of today’s internet.
  • Cryptocurrency will likely be the main form of payment in the metaverse.
  • Investing in the metaverse will require paying close attention, the ability to be nimble and a high risk tolerance.

The term metaverse seems to be all over the news these days, especially since Facebook rebranded itself to become Meta. There is some debate as to exactly what the metaverse is. There are a number of investing opportunities in the metaverse, with more likely to surface in the future.

For advisors and their clients who are looking to invest in the metaverse, here are some things you need to know. 

What Is the Metaverse?

In many ways, the term metaverse is still evolving and is hard to define. In some ways, it is the next iteration of the internet. The metaverse is about giving users an immersive experience beyond the capabilities of today’s internet. Beyond a PC or a smartphone, users of the metaverse would use tools such as virtual reality headsets and controllers to enhance the experience. 

The Metaverse Economy Explained

The metaverse economy has been likened to an online, virtual version of the physical economy we are used to.

The metaverse economy does (or will) include a variety of activities, including:

  • Shopping.
  • Visiting attractions of all types around the world.
  •  Attending concerts and other entertainment events.
  •  Selling digital services and products.
  •  Virtual real estate.
  •  Trading collectibles as nonfungible tokens or in other formats.
  •  Online gaming and related services, which are expected to be a big part of the metaverse.

Almost any economic or business activity you can imagine in the real world is possible in the virtual world of the metaverse. 

What Opportunities Does the Metaverse Provide Investors?

There are any number of investing opportunities tied to the metaverse. Some are out there now; others will evolve and develop over time.

Some examples include:

  • Stocks of companies involved in one or more aspects of the metaverse.
  • Metaverse ETFs — this one is still evolving.
  • Investing in metaverse real estate.
  • Crypto, NFTs and other digital assets. 

What Risks Does Investing in the Metaverse Present?

The metaverse is in its infancy, so we don’t know what companies and applications will be successful. Many companies will hop on the bandwagon and try to ride the development of the metaverse to success. As with most new technologies, only some of these companies will succeed. 

How Can You Invest in the Metaverse?

For most investors, starting a metaverse-related company will entail more conventional investments such as stocks in companies active in the metaverse, metaverse ETFs, crypto and digital assets and virtual real estate in the metaverse. 

While not an investment, it is notable that Fidelity Investments recently launched its metaverse-based educational tool, Fidelity Stack

What Products and Services Are Part of the Metaverse?

There is a whole universe of products and services that could ultimately be a part of the metaverse. Many of these are adaptations of products and services now available in a normal retail format. Others may be unique to this space. Some examples include: 

  • Immersive hardware such as virtual reality (VR) headsets. Some think future hardware could help users capture other senses beyond sight and sound in the realm of augmented reality.
  • 3D creation software that would be used in building scenery in the virtual world or to create items to be bought and sold in the metaverse.
  • Interactive platforms or virtual worlds that will be the destinations for visitors to the metaverse; this is roughly the equivalent of a website on the internet.
  • Connectivity, which will be key to accommodating an infinite number of visitors to the metaverse. There is a need for fast 3D connectivity for computers to navigate the metaverse.
  • Semiconductors, which will be at the heart of the increased computing power required by the metaverse. Advances in semiconductor technology will be required to help power and navigate the metaverse.
  • Security, a key element for users of the metaverse. Many users will want to protect their identities and they will also need protection for their finances, especially with the increased role of crypto as a payment medium in the metaverse. 

Metaverse Stocks

There are a number of companies in the metaverse, and these stocks will evolve over time as the metaverse evolves. Among the top metaverse stocks often mentioned are:

 Meta Platforms Class A (ticker FB), formerly known as Facebook. This is the company that is perhaps most responsible for bringing the metaverse to the forefront. Beyond ad revenue from Facebook and Instagram, in the longer term the company is focused on a number of metaverse opportunities, including its line of Oculus VR immersive headsets.

Morningstar gives the stock a five-star rating, meaning that it feels the stock is quite undervalued. The shares were recently trading under $210; Morningstar’s fair value estimate is about $384.

  • Through April 30, 2022, the stock was down 40.40% year to date.
  • The trailing five-year average annual return was 5.94%.

NVIDIA Corp. (ticker NVDA) is the top designer of discrete graphics processing units (GPUs) used to enhance the visual experience on computing platforms. This is a core element of the metaverse. While GPUs have been around for a while, NVIDIA has had success with its focus in new markets such as artificial intelligence and self-driving vehicles. The company’s new Omniverse Enterprise product is aimed at creators in the metaverse space.

Morningstar gives the company three stars, as the stock’s recent price of about $188 per share is not far off the fair value estimate of $200 for the stock. 

Through April 30, 2022, the stock’s total return was: 

  • YTD -36.92%.
  • Trailing three-year average annual return 60.17%.
  • Trailing five year-year average annual return 48.17%.
  • Trailing ten-year average annual return 49.94%.

Unity Software (ticker U) is a major player in the gaming sector, with its gaming engine powering over half of all mobile, counsel and PC games in the world. Gaming is expected to be a major part of the metaverse. 

Morningstar ranks the stock as three stars; the recent price of just over $57 per share is well below the fair value estimate of almost $120 per share.

 As of April 30, 2022: 

  • YTD total return was -53.56%.
  • The trailing one-year return was -34.62%. The stock went public in September 2020. 

Top Metaverse ETFs

There are a few ETFs that track metaverse stocks all or in part. These ETFs are generally new and don’t have much of a track record. Many have come into existence in 2022. 

Some metaverse ETFs to monitor and consider:

Roundhill Ball Metaverse ETF (ticker METV), which was launched in June 2021. The fund has just over $600 million in assets and an expense ratio of 0.59%. The fund has 43 holdings. Meta and NVIDIA recently combined to make up about 17% of the fund as the two largest holdings. YTD total return through April 30 was -36.76%. 

Amplify Transformational Data Shrg ETF (ticker BLOK), which was launched in 2018. The ETF has 42 holdings, with about 41% of the fund’s assets concentrated in its top 10 holdings. This ETF is actively managed and focuses on companies that develop and use various blockchain-related technologies. The fund’s YTD return through April 30 was -33.41%, but its trailing three-year average annual return was 21.08%. The fund’s expense ratio is 0.71%. 

Fount Metaverse ETF (ticker MTVR), which currently holds 49 stocks. The fund tracks an index of companies that follow a metaverse theme. The fund was established in October 2021. According to Morningstar, the ETF is small, with $7.9 million in assets. The expense ratio is 0.70%. As of April 30, the fund’s YTD loss was 24.56%. 

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Fidelity Metaverse ETF (ticker FMET), launched April 21, is down 8% as of May 24. The fund has $4.7 million in net assets and an expense ratio of 0.39%. Of its 59 holdings, the biggest are Meta Platforms, Apple and Tencent.

The term “top” metaverse ETFs may be a bit premature at this juncture, as this is a developing ETF sector. There are a number of broader technology and related ETFs that hold a number of metaverse stocks, but these are not pure plays on the metaverse. 

Real Estate in the Metaverse?

The ability to invest in and purchase virtual real estate via the metaverse is already big business and will continue to grow. This is essentially buying virtual real estate.

Reasons to buy virtual real estate in the metaverse include to establish a home base from which to conduct business, or as an investment. A home in the metaverse is analogous to having a webpage from which to conduct business on the internet. This could be a place to display your possessions, interact with friends or do business.

The investment side of this assumes that virtual real estate will grow in popularity and those buying digital real estate will be able to sell it. Some big-name investors in this space reportedly include the rapper Snoop Dogg, and major companies such as PwC, Samsung, J.P. Morgan and HSBC have made purchases of virtual real estate. The investment opportunity will depend on the extent to which demand for virtual real estate takes off.

Some real estate activities that can make help make money in the metaverse include:

  •  Flipping plots of virtual real estate.
  • Renting out your virtual real estate.
  • Building a virtual commercial venue.
  • Advertising, allowing companies to erect virtual billboards on your virtual land.
  • Virtual real estate management.

What Will Be the Role of Cryptocurrency in the Metaverse?

Cryptocurrency will likely be the main form of payment in the metaverse. Blockchain technology lies at the heart of both the metaverse and crypto. There are a number of applications built around blockchain technology and crypto that enable transactions in the metaverse.

The Sandbox is a virtual gaming world. Within this digital world, users use SAND in-game tokens to purchase virtual land, buildings, various digital accessories and other items such as NFTs. 

Decentraland offers another meta token called MANA that can be used to purchase virtual land to develop for gaming options in the metaverse.

There are a number of other related applications that facilitate metaverse commerce in various niches.

Direct peer-to-peer applications using crypto and blockchain related digital assets can be used to facilitate the settlement of funds for metaverse transactions, with hopefully little or no transaction cost. NFTs hold promise as a way to guarantee payment in the form of a piece of digital art, a digital collectible or even a pair of digital Nike sneakers that could be worn as users explore the metaverse. 

One of the issues facing users of the metaverse will be the volatility of crypto and other digital assets. This volatility can affect the purchasing power of metaverse buyers and the profitability of metaverse sellers.  

Can You Make Money in the Metaverse?

There are a number of ways that you can potentially make money in the metaverse. A few to consider: 

  • Investing in metaverse tokens such as SAND or MANA.
  • Using play-to-earn gaming platforms in the metaverse. Be aware that many of these games require a significant upfront investment.
  • Investing in metaverse real estate. As with real estate in the real world, investors need to consider key factors such as location before investing.
  • Metaverse tourism. You can buy virtual land plots geared to virtual tourists. Some feel that virtual tour guides and travel agents may be required in the future.
  • Buying, selling and creating NFTs.

Who Are Some Key Personalities in the Metaverse Space?

Certainly, Meta CEO Mark Zuckerberg is one name that comes to mind. Microsoft CEO Sayta Nadella is another. There are a number of other key personalities impacting the metaverse beyond these two. Here are a few: 

  • Neal Stephenson, a prominent sci-fi writer who first mentioned the metaverse in his novel “Snow Crash” in 1992.
  • David Baszucki, who founded Roblox in 2004. The company is a prominent player in bringing gaming into the metaverse.
  • Jensen Huang, founder and CEO of NVIDIA. Through its Omniverse platform, it is accelerating metaverse workflows and collaboration.
  • Matthew Ball, one of the founders of the Roundhill Ball Metaverse ETF. 

These are just a few of the influential people who have been or will be instrumental in moving the metaverse forward. 

What Companies Are Leading the Way?

NVIDIA is a computer chip maker that has launched NVIDIA Omniverse Platforms, consisting of 3D, virtual and augmented reality worlds. The platform provides tools for game developers and enables engineers and designers to provide a more immersive gaming experience to users. 

Active Theory is a metaverse builder that facilitates accessibility for makers, artists and brands that want to do business in the metaverse. 

AWS or Amazon Web Services provides 5G and high-speed internet connections via its cloud computing platform. 

These are just a few of the pioneering companies leading the way into the metaverse. 

Summary

The metaverse is a next-gen web application that is emerging now. The metaverse is its own virtual world for conducting all sorts of commercial transactions as well as many social interactions. The sky’s the limit here. Investing in and profiting from the metaverse will require attention to what is happening, the ability to be nimble and a high risk tolerance. 

(Image: Chris Nicholls/ALM; Adobe Stock)


Roger Wohlner is a financial writer with over 20 years of industry experience as a financial advisor.