ETF Watch: “Want a Piece of Me?”

If the idea of “Netflix and chillin’” is something from 2020 you want to carry over to 2021, you aren’t alone. The streaming wars are on and it’s not ending anytime soon. 

This week, ATT (T) announced a merger with Discover Networks (DISCA) to the tune of $44B as part of an effort to take on Hulu, NFLX, and DIS.  Elliot Capital Management high fived but Wall Street balked. 

The reason? 

Dividends.

The gist is this: T got kicked off the “dividend aristocrats” list because it plans on lowering its payout by $7 billion post-merger. 

To investors who live for the company’s lucrative payouts, this is the worst possible scenario. Not only are the dividends being cut, but the diversification offered by the entertainment division will go away.

One way to get back exposure to the diversified entertainment sector is through targeted ETFs. 

Financial advisors across the country delved into the search according to TrackStarIQ. Check it: 

Investco Dynamic Leisure and Entertainment ETF (PEJ): As the economy gets back to its regular self, pent-up demand for everything spanning movie theaters, outdoor activities and food will take over. 

If you are on the search for a fund that has exposure to the GOT (get out there) trades while still encompassing media companies with significant streaming business, this could be a good one. Major holdings include SYY, ABNB, AMC, BKNG, DISCA, and VIAC in it’s top ten. 

VanEck Vectors Gaming ETF (BJK): Nothing says gaming more than an index that requires companies to have at least 50% of their revenues from actual gaming. The BJK doesn’t just focus on companies creating the next PlayStation or video game but also sports betting, casino hotels, lottery and gaming services- and media companies as well. 

Communication Services Select Sector SPDR Fund (XLC). The XLC is one of those that has exposure to telecommunications services, media, entertainment, interactive media & services with an accumulated $13.4B in its asset base. It has 26 stocks in its basket, with At& T in 7th position at 4.5%. What’s more, the fund also has exposure to GOOGL, and FB, both of which have massive amounts of cash on hand.

Our hot take: 

  • Media companies are not going away despite everyone wanting to move away from their sofas. 
  • Watch subscriber/subscription bases for media companies, including acquisitions they are making or potential targets. For example, there are rumors that AMZN may acquire MGM. Does your fund have exposure to both digital media + movie studios? 

Possible questions from your clients: 

  • What would make more sense, purchasing the shares of the media company directly or the ETF? 
  • How much will the shares of the ETF be impacted if regulation changes in the US and overseas? 
  • Will AMZN ever acquire DIS and if so, what will happen to the Star Wars Franchise? 

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