When Van Eck first brought the Market Vectors Gaming ETF (BJK) to the floor, I appreciated the unique nature of the sub-sector. I liked the concept of a pure play on global gaming companies that earned revenues through casino operations, race track entertainment, sports books and other betting technologies.
On the other hand, introducing a discretionary spending investment at the start of 2008 was akin to a mafia-style kiss of death. Consider the fact that Market Vectors Gaming ETF (BJK) is still 60% off of its inception price 15 months ago. Moreover, it has dropped further from its 52-week high than any other unleveraged, consumer-based ETF over the last 52 weeks.
Consumer ETFs 52-Week High% Consumer Staples SPDR (XLP) -28% Powershares Food/Beverage (PBJ) -30% SPDR Retail (XRT) -35% Consumer Discretionary SPDR (XLY) -38% Powershares Leisure/Entertainment (PEJ) -40% Market Vectors Environmental Services (EVX) -48% Powershares Media (PBS) -49% Market Vectors Gaming (BJK) -58%
So I am baffled by the favorable press on Market Vectors Gaming (BJK) recently. Granted, the assets have swollen eight-fold. And volume has picked up dramatically, as though an old-one armed bandit had been replaced by a jazzy, computerized, American Idol slot machine.
I've heard the 31% 4-week gains described as an early-stage recovery play. Yet how is that any different than SPDR Retail's (XRT) 35%, Powershares Leisure/Entertainment's (PEJ) 32% or SPDR Consumer Discretionary's (XLY) 31%?
I've read that Gaming's recent momentum may be based on individual corporate fundamentals. Really? According to the Van Eck web site, the index that Market Vectors Gaming (BJK) tracks has a P/E of 14 and a P/B of 4.25. Powershares Leisure/Entertainment's (PEJ) reports a weighted average P/E under 8, and a P/B of 1.3. SPDR Retail's (XRT) P/E may be slightly higher at 15, but it's price-to-book is far more attractive at 1.7.
It seems to me that the 2009 sell-off was harsher to BJK on the downside. Meanwhile, the subsequent March rally was equally fortuitous to all discretionary ETFs, if not most beneficial to Retail (XRT).
Not only is the Gaming ETF (BJK) expensive with an expense ratio near 1% (70 basis points more than the broader Consumer Discretionary SPDR) and not only is BJK 50% more volatile than the broader S&P 500 with a high beta but where exactly is the portfolio alpha? BJK has a near perfect correlation in price movement with the S&P 500 at .98!
I can give "props" for one positive in the Market Vectors Gaming ETF (BJK). Specifically, the fund is genuinely global with more than 70% of its holdings in foreign companies. That said, an investment right here, right now is a gamble where the risks outweigh the rewards.
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