Investors Betting On Gaming ETF – Saturday March 21, 2009


Political maneuvers in Washington, D.C., and Beijing are driving renewed interest in the gaming industry. And that’s translating into a surge in assets for the Market Vectors Gaming ETF (NYSE:BJKNews).

The exchange-traded fund’s assets have jumped from just $2 million on March 6 to $15 million today. But trading volume has been even more impressive:While activity limped along at 1,000-3,000 shares per day in January and February, it exploded to the upside starting on March 9.

Such an upturn comes following a series of corporate and political moves that could leave casinos and related gaming firms poised to reap significant rewards, according to portfolio managers and analysts.

“Something’s definitely happening,” said Adam Phillips, managing director of Van Eck Global’s Market Vectors unit. “It could be an early-stage U.S. economic recovery play or simply renewed strength in the gaming sector based on specific company fundamental outlooks.”

Movements are taking place on both fronts.

Interest in the gaming sector started picking up on March 4, when the chief executive of Las Vegas Sands Corp. (NYSE:LVSNews) said the casino operator wouldn’t have to default on its debt obligations. In a Reuters report late the day before, Sheldon Adelson credited a combination of cost-cutting moves and increased business in Macau, China’s booming casino mecca. The company has two casinos in the Chinese city.

The CEO, speaking at a Reuters-sponsored conference, was bullish on an upturn in travel to Macau. Adelson felt confident about a pickup in business “based on recent Chinese media reports suggesting that the governments of Hong Kong, Macau, and Guangdong province have decided to lift the restrictions,” the article added. Shares of LVS have jumped from a closing price of $2.19 on March 2 to end at $2.57 on Thursday.

Around the same time, Rep. Barney Frank (D-Mass.) held a press conference in which he complained that the three-year-old ban on Internet trading was hurting trading activities between the U.S. and Europe. At that time, he also laid out plans to start working towards presenting legislation to overturn those restrictions.

Broad-Based Rally?

Robert Stein, chief investment officer at Astor Financial, has been watching the ETF’s recent climb. The adviser and portfolio manager, who was trained as an economist and takes a top-down approach to analyzing sectors as well as macroeconomic conditions, believes BJK’s rising fortunes are broad-based.

He said that while the gaming industry has been battered by the recession, it has actually held up relatively well compared with many other sectors. “As a result, some analysts are starting to speculate that more discretionary income will go into the sector in the future,” said Stein. “If that plays out, BJK could definitely benefit from a broader-based economic recovery.”

In fact, he notes that stock markets in the U.S. started showing signs of improvement around March 6, when the major indexes seemed to bottom out in terms of intraday lows.

“A lot of other areas in the market besides gaming have picked up some traction since that point,” added Stein. “So this move into BJK probably isn’t just short-term traders.”

But not everyone is eager to rush into the sector yet. That includes managers at the Financial Enhancement Group. “We have been avoiding the gaming stocks and will for some time,” said Adam Harter, one of the firm’s analysts. “Demographically speaking, we feel the business model had some flaws given the spending patterns and age composition of our country at this time.”

Jerry Slusiewicz, president of Pacific Financial Planners, says BJK nonetheless looks attractive from a technical standpoint.

“It looks like this ETF has really formed a truer double bottom than the rest of the market,” he said.

A so-called double bottom formation is viewed as a very positive signal in technical analysis. “There’s a lot of support around $13.20 for BJK (which closed up on Friday at $15.97),” said Slusiewicz. “So the downside could be around 16% from this point. I would definitely use stop losses around there to limit risks if you’re interested in jumping into this ETF.”

He warns that the ETF’s top four holdings comprise nearly a third of its portfolio. But a plus for the portfolio is that more than 70% of its assets are in foreign stocks. “That could be another catalyst for BJK since emerging markets stand to outperform in any prolonged global economic rebound,” said Slusiewicz.

Slusiewicz notes that, as an institutional investor who blocks trades for high net worth clients, the recent uptick in volume for BJK isn’t great enough to ease his liquidity concerns.

“If I were to take a position in this ETF, we’d wind up owning several days worth of shares based on current trading volume. It would still just be too difficult to get out of that position if we had to for any reason,” he said.

But for smaller investors, Slusiewicz likes the prospects for BJK going forward. He says that various sets of other data besides volume and asset numbers indicate institutions are jumping into the gaming sector through the Market Vectors ETF.

“It’s like watching an elephant jump into a relatively small pond,” he said. “It’s making a big splash, and you can see that through exploding trading volume and rising assets.”

The sector is also still undervalued, adds Slusiewicz. “The whole industry is very cheap. Look at Las Vegas Sands. It was trading at $106 a share at one point in 2008. Now that’s down to less than $3 a share,” he said. “And it’s a big company with a market cap of $1.7 billion right now. So we’re not talking about chump change.”


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