This Video Game ETF Is On Fire — And It Could Be Just The Start

Make all the nerd jokes you want. The Roundhill BITKRAFT Esports & Digital Entertainment ETF NERD is on fire and there could be more to come for the upstart video game exchange-traded fund.

What To Know: As of Monday, NERD had doubled off its March lows. Following a 1.59% gain on Tuesday on double the average daily volume, NERD is up 109.68% from its March lows. NERD also hit an all-time high Tuesday.

More NERD superlatives: excluding leveraged ETFs, there are nearly 1,400 equity-based ETFs trading in the U.S. Just 12 are outperforming NERD this year.

Why It's Important: “We believe that the esports and digital entertainment sector is uniquely positioned to perform in today’s environment as the global economy shifts from physical to digital,” said Roundhill Investments co-founder Tim Maloney in a statement.

Maloney points out that second-quarter video game earnings are likely to be sturdy thanks to global shelter-in-place directives forced by the coronavirus pandemic. Actually, “sturdy” and “strong” may understate the earnings performances of the likes of Electronic Arts EA, Activision ATVI and Take-Two TTWO.

Activision and Take-Two reported earlier this week. Activision said earned non-GAAP 81 cents a share on sales of $1.93 billion. Analysts expected EPS of 69 cents on revenue of $1.7 billion. Take-Two delivered blowout results, too, thanks to "NBA 2K" and "Grand Theft Auto Online."

Those stocks combine for just over 10% of NERD's weight.

What's Next: It'd be easy to think NERD and its video game brethren may be extended here, but in reality, this could be the start of something more substantial and longer-ranging.

“However, we believe that the recent acceleration of sector growth is representative of a longer-term secular trend, and that gaming will continue to grow well beyond this year,” notes Maloney.

Separating NERD from some of its rivals are vital factors, including purity and international exposure. While some rival funds feature allocations to chip and components stocks, NERD is as pure as ETFs come when it comes to video game and esports exposure.

Second, just 18.3% of NERD's weight is allocated to U.S. stocks, an important trait when considering the expanse of the esports and gaming industries. China, the world's largest gaming market, is 29.5% of NERD's weight.