METV: Metaverse Stocks Bottoming, Eye March Highs

Summary

• The metaverse theme peaked last November shortly after a thematic ETF launched.
• Suffering a 55% drawdown, shares of METV have bottomed out and settled Friday at multi-month highs.
• Shares look to head higher as tech and growth stocks lead the broad market's summer rally.

tolgart

It has been a rough start for the Metaverse. Almost a year ago now, the company formerly known as “Facebook” changed its name to Meta Platforms (META), according to Forbes. It was both a symbolic move and a trend that had been building for many months. Consider that there were few mentions of the “metaverse” during 2020 earnings calls, but then the number began to skyrocket. The fourth quarter of last year featured a nearly quadrupling of mentions versus the prior quarter, according to CB Insights.

"Metaverse" Mentions Surged Then Dip

CB Insights

Q1 of this year featured a drop in mentions, though. That coincided with the bursting of the tech bubble as high-duration assets sold off in unison from November 2021 through the middle of this past June. The question now is: Can metaverse stocks come back? Naturally, there is an ETF to play the trend.

Boldly named “The Metaverse ETF” (NYSEARCA:METV), Roundhill Ball Investments launched the fund in late June 2021. Major volume came into (and out of) METV in November and December last year. METV began trading near $15 per share with little fanfare, but then came the final tech thematic thrust from October into mid-November. Since the peak late in 2021, METV has dropped back sharply. Down 55% at the low, shares have rallied big this summer.

According to Fidelity Investments, METV seeks to track the performance, before fees and expenses, of the Ball Metaverse Index. The index seeks to track the performance of globally-listed equity securities of companies that engage in activities or provide products, services, technologies, or technological capabilities to enable the Metaverse, and benefit from its generated revenues. "Metaverse" is a term used to refer to a future iteration of the Internet.

METV has $580 million in assets under management and trades with a 0.59% expense ratio, according to Roundhill Investments. The fund has 43 holdings, but it is concentrated in just a handful of growth stocks – some speculative, some well-established.

METV Top Holdings

Roundhill Investments

The top six companies in METV comprise nearly half the ETF. Investors looking for exposure to the metaverse theme might be better served simply holding those stocks considering the fund’s expense ratio. You can also potentially better manage your tax liability holding the single stocks.

METV is primarily a large-cap U.S. fund with more than 80% of the ETF invested in firms domestically domiciled. Morningstar reports that 51% of METV is invested in the Information Technology sector, mainly in the Entertainment, Software, and Semiconductor & Semiconductor Equipment industries.

METV: Sector & Market Cap Breakdown

Roundhill Investments

The Technical Take

While the fund nearly nailed the top in the metaverse frothiness, I like what I see with recent price action. Notice the volume surge last year. Shares then plunged and those new buyers were left holding the bag, a secondary volume spike came during a harsh losing streak three months ago. Perhaps that helped bring about some capitulation selling. METV formed a bullish rounded bottom, then broke out above $9.40 earlier this month. A small successful retest paved the way for METV to settle at a fresh three-month closing high last Friday.

I see minor resistance at current levels, but ultimately, I expect METV to climb toward the March peak near $12.60 soon. Being long here with a stop under $9.40, targeting $12.50 looks like the play.

METV 1-Year Chart: Bullish Rounded Bottom, Eyes March High

StockCharts

The Bottom Line

Metaverse believers have been treated to a rough last 10 months, but shares are on the mend. While the fund has a high expense ratio for what it offers, the technical picture looks bullish.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.