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BlackRock launches metaverse ETF despite lack of user adoption

metaverse NEW YORK, NEW YORK - NOVEMBER 14: A woman walks near the BlackRock headquarters on November 14, 2022 in New York City. BlackRock and Saudi Arabia's sovereign wealth fund signed an agreement to jointly explore infrastructure projects in the Middle East. (Photo by Leonardo Munoz/VIEWpress)
Blackrock's new ETF will concentrate on companies that provide products and services that are expected to contribute to the metaverse in areas including virtual platforms, social media, gaming, 3D software, digital assets, and virtual and augmented reality. Photo: Leonardo Munoz/VIEWpress

Blackrock (BLK) has launched an exchange-traded fund (ETF) that will concentrate on tech companies linked to the metaverse, despite the sector's struggle to achieve mass adoption across a wide user base.

The iShares Future Metaverse Tech and Communications ETF (IVRS) will invest in firms that could directly or indirectly impact the technology associated with the metaverse. These sectors include virtual platforms, social media, gaming, 3D software, digital assets, and virtual and augmented reality.

The concept of the metaverse, first coined in sci-fi writer Neal Stephenson's 1992 book Snow Crash, has been envisioned by proponents as an immersive and interconnected virtual environment that could potentially offer new social and economic opportunities, entertainment experiences, and educational possibilities.

The new ETF's website said: "The iShares Future Metaverse Tech and Communications ETF seeks to track the investment results of an index composed of US and non-US companies that provide products and services that are expected to contribute to the metaverse in areas including virtual platforms, social media, gaming, 3D software, digital assets, and virtual and augmented reality."

Some of the companies included in the index are Meta Platforms (META), Apple (AAPL), Nvidia (NVDA), Netease (NTES) and Roblox (RBLX).

At this stage the Blackrock ETF will primarily focus on equities, has a net asset value of around $5m and trades on the New York Stock Exchange (^AMZI).

The fund's prospectus said that the ETF seeks to track the investment results of the Morningstar Global Metaverse & Virtual Interaction Select Index which measures the performance of equity securities issued by companies that "enable the metaverse".

The metaverse is usually accessed through a virtual reality headset. Meta has invested $36bn in developing the associated technology.

Read more: High on VR: Virtual reality experience boosts mood similar to psychedelics

However, it has incurred significant losses, according to analysis by Business Insider, posting a $3.7bn operating loss on revenue of $285m in its most recent quarter.

Developers have been trying to take virtual reality to the masses since the mid 1990s, when metaverse platform Active Worlds offered users the opportunity to explore 3D environments built by others or create and “own” custom universes but it didn't gel with the public.

Now that the graphics of these virtual worlds has improved, users still aren't flocking in. So why have Blackrock decided to launch their metaverse-focused ETF?

BlackRock Technology Opportunities Fund manager Reid Menge thinks the metaverse has potential. In a blog post in February he said: "The metaverse at this juncture, it is much like the internet of the early 1990s or the smartphone of the early 2000s. We expect it is going to be big, and very likely change people's daily lives."

Dr Christina Yan Zhang, CEO of The Metaverse Institute, told Yahoo Finance UK: "Blackrock is one of world’s largest asset management companies. Their iShare ETF products are mainly focusing on long term investments. According to a recent survey from consulting firm KPMG, over 90% of investors still believe the metaverse is the next phase of the internet. For Blackrock, it is an important sector not to be missed for long term investment gain.

Read more: Web3 sectors to watch in 2023

“The Metaverse has increasingly become a convergence of a whole range of cutting edge technology from quantum computing and AI, 5G, 6G to various user interface such as AR, XR, coming together to form the next generation of the internet which is more immersive, interactive and intuitive."

However Zhang added: "Not many business have successfully figured out efficient business models to make huge money from the metaverse related economy now.

"Combined with high inflation rates and gloomy economic outlook, big tech are focusing on ChatGPT and other Generative AI products, which seems to be easier to develop business models and attract mass adoption quickly.

"A typical example is Microsoft (MSFT) who in February disbanded its Industrial Metaverse Project after four months.

"Instead, they are investing hugely to ChatGPT and Generative AI."

Zhang said that it is natural for any kind of new technology to go through the Hype Cycle. She highlighted that AI has gone through the same cycle before, experiencing two winters so far, one during the 1970s-1980s, caused by a dwindling of funding, interest and research, and during the Mid-1990s, caused by overly complicated technology and a drop in corporate interest.

Read more: 2022, the year NFTs fell to earth

Zhang said suggested that the Metaverse is similar as "the first wave to attempt mass adoption took place in 2003, led by game engines such as Second Life, hype was generated then, but it cooled down".

Zhang said Blackrock "will always want to attract more Chinese investors" as the metaverse as a key industry for the nation’s future development.

She said: "China's Ministry of Industry and Information Technology (MIIT) along with four other government departments, provides the most comprehensive set of policies yet for developing China’s metaverse, with key tasks and development goals for the period up until 2026."

There are other metaverse focused ETFs available, such as the Fidelity Metaverse ETF (FMET), which has increased in value since late December 2022.

Watch: High on VR: Virtual experience boosts mood similar to psychedelics

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