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Video Game Industry’s Massive Growth Rate Means Big Investing Opportunities

From Jon Markman: I love my digital stuff. My iPad Pro, Dell laptop and Nexus6 smartphone make me way more productive, and I can trade and catch up on ballgames from anywhere.

Sadly, there is a darker side to digitalization. It can be addictive. People are dropping out, losing themselves outside the physical world. Many are spending their time playing or watching others play video games. And it’s starting to fray the social fabric.

It’s weird because the New Gilded Age is one of unprecedented opportunity. We have access to virtually unlimited compute power and knowledge. If you can dream something, you should be able make it happen.

“Massively multiplayer online game,” “first person shooter” and “role playing game” is the vernacular of gamers. While the phrases may not mean much to many of you, it has become a huge business. A recent Economist article argues it’s an alternative reality that is sucking-in disillusioned young people in America at a dizzying rate.

For example, between 2000 and 2015, the rate of employment for young men in their 20’s dropped from 82% to 72%. Fully 22% of the 2015 jobless cohorts acknowledged not working at all during the year. Furthermore, they are not marrying, nor are they leaving their parents’ home.

Given the decline in work hours is offset 1-for-1 with a rise in hours spent gaming, Erik Hurst, an economist at the University of Chicago, concludes a significant portion of young adults are “delaying or cutting back employment to play video games.”

It’s something the gaming industry has known for a while. In 2014, Wall Street analysts were shocked when a bidding war broke out for Twitch, a fledging online network where gamers went to watch others play video games. The bidders were Amazon (AMZN) and Alphabet (GOOGL). The winning bid was $970 million.

Since then, Alphabet has scrambled to beef up YouTube Gaming and Microsoft (MSFT) countered with Beam. Last week, Facebook (FB) announced it was bringing its vast social network to desktop gamers. And Nvidia (NVDA), a company that dominates high-end gamer graphics cards, is stepping into the fray, too.

Gaming Sales to Skyrocket

Consulting firm PricewaterhouseCoopers predicts U.S. gaming sales will reach $19.6 billion by 2019. That is a compound annual rate of 30% from 2015. It augers well for leaders like Activision Blizzard (ATVI) with its diverse portfolio and strong franchises like Call of Duty, Overwatch and Candy Crush.

Unfortunately, commerce does not strengthen the social fabric. Policymakers are being forced to rethink safety nets. The consequences are expensive and long-lasting.

In 2010, a cornerstone of the Affordable Care Act was a provision allowing young people to remain on their parents’ health insurance policies until age 26. In fact, the provision was so popular it was included in the recent repeal and replace effort. This is a symptom, not a solution.

Some warn things will only get worse as robots, both mechanical and software, replace large swaths of workers, before new industries develop. Artificially intelligent software can already write code, they warn. If young people are disillusioned now by grim employment prospects, just wait.

I’m more optimistic. The promise of the New Gilded Age is invention. Digitalization changed the way we consume and the way we connect with each other. It made new business models possible.

In the past, technology has always created new opportunities for investors and society at large. And it will be that way again now.

The FactorShares Trust PureFunds Video Game Tech ETF (NYSE:GAMR) was trading at $34.19 per share on Thursday morning, up $0.13 (+0.38%). Year-to-date, GAMR has gained 13.78%, versus a 5.38% rise in the benchmark S&P 500 index during the same period.

GAMR currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #29 of 45 ETFs in the Consumer-Focused ETFs category.

This article is brought to you courtesy of Jon Markman’ s Pivotal Point.

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