Wednesday’s ETF To Watch: Gaming ETF (BJK)

by on July 28, 2010 | ETFs Mentioned:

While the economic outlook remains uncertain going into the second half of 2010, many large corporations have posted solid earnings that have handily beaten expectations. These robust reports have helped to jump-start the sagging stock market but have failed to make a meaningful dent in the unemployment number which still stands at an uncomfortably high level of 9.6%. Even more troubling is that when using the broader U-6 measurement, unemployment stands at 15.6%, and close to 7 million people have been out of work for more than half a year. This dismal jobs situation has made consumers increasingly gloomy with regards to the economic outlook. In the latest continuation of this trend, the Conference Board reported yesterday that its Consumer Confidence Index fell to 50.4 from June’s revised reading of 54.3 which is especially poor given that analysts had expected the index to post a level of 51, the lowest level since February of this year.

This negative outlook is likely to impact the consumer sectors and will take a heavy toll on the discretionary sector in particular. Of this market segment, arguably the most discretionary sector of all is the gaming sector. Most casinos have slumped in light of the global recession as consumers have cut back on discretionary purchases in favor of paying off debt. This trend has sent Las Vegas, the world’s capital for gaming, reeling as many resorts struggle to fill rooms and keep patrons spending in the casinos during this tough economic time [also see Looking For Consumers? ETFs To Play Millionaire-Heavy Countries].

One of the biggest worldwide gaming companies which is likely to be highly impacted by these trends is Las Vegas Sands (LVS) which is scheduled to report earnings later today. The company has a worldwide footprint in some of the top markets in both Asia and the U.S. which ensures that the company will be a bellwether for the global gaming industry. In addition to its flagship property “The Venetian” in Las Vegas, the company owns several properties in Macau near Hong Kong as well as other casinos on the Vegas strip. More recently, LVS has opened a resort in Israel and earlier this year the company inaugurated a new casino in Singapore, the first in the country’s history. This earnings report will represent the first one that shows profits and losses from this new property and given Singapore’s amazing growth levels as of late, a weak outlook from this new $5.6 billion casino could send more domestic focused companies– which are based in slower-growing markets– sharply lower [see Can Anything Stop The Singapore ETF?].

Hudson Securities believes that LVS will benefit from these overseas properties and that the Asian segment should help to balance out the declining prospects in Nevada. The firm believes that the company will “meet or exceed expectations as strength in Macau and Singapore should more than offset lingering sluggishness in Las Vegas.” They continue by writing that “58% of LVS’ second quarter property EBITDA will be derived from Macau, with “revenues [growing] faster than capacity.” The company is expected to post earnings of 9 cents a share on revenues of $1.6 billion compared to last year’s 34 cent loss–or a profit of 1 cent a share excluding write-downs and other impacts–on $1.06 billion in revenue minus promotional allowances suggesting a huge turnaround for the $16 billion company [see Gaming ETF On A Hot Streak].

Due to this earnings report and the lackluster prospects for discretionary purchases, we have decided to make the Market Vectors Gaming ETF (BJK) today’s ETF to watch. The fund tracks the S-Network Global Gaming Index which offers exposure to publicly traded companies worldwide that derive greater than 50% of revenues from the global gaming industry. The fund’s top holding is Las Vegas Sands which makes up 8.1% of the fund’s total assets and is followed by slot machine manufacturer International Game Tech (6.6%), and hotel and casino operator Wynn Resorts (6.4%). BJK is also heavily weighted towards international securities which make up two-thirds of the fund’s total assets. Besides the U.S., some of the largest individual country weightings go towards Australia (13.5%), Malaysia (10.9%), and the United Kingdom (10.5%) ensuring that the fund is well diversified geographically. BJK charges an expense ratio of 0.65% and it has performed modestly well over the course of 2010; the fund has posted a gain of 7.1% since the beginning of the year and a 12.5% gain over the past 52 weeks and looks to continue its hot streak after today’s crucial report from LVS [also read ETF Plays To Invest Like Buffett, Fisher, Paulson].

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Disclosure: No positions at time of writing.