For financial professionals in Uruguay

Investing in the metaverse – separating hype from reality

Denny Fish

Denny Fish

Portfolio Manager | Research Analyst


Doug Rao

Doug Rao

Portfolio Manager


Jun 15, 2022

The metaverse represents the next major evolution in computing. But where are the real wins occurring? Equity portfolio managers Doug Rao and Denny Fish explore the key considerations for investors interested in powering the virtual worlds of tomorrow. They explain the importance of separating hype from reality by focusing on the building blocks that are enabling innovation.

Key takeaways

  • To us, the metaverse represents a more immersive extension of the internet where individuals can engage with friends, businesses and entertainment.
  • While the metaverse tends to be defined on a consumer level, there are a host of ways that it can evolve for enterprise use cases that we believe could present even bigger opportunities.
  • Because the metaverse requires hardware, cloud computing and other components that will allow for full immersion, we believe opportunity lies in the building blocks that will enable faster and more effective innovation.

View Transcript Expand

Doug Rao: We see the metaverse as an extension of the internet, and it’s a more immersive Internet and it will provide opportunities for people to enter smaller universes where they can engage with people, friends, business, entertainment.

Denny Fish: Whenever there’s a big theme like this, there’s a lot of potential opportunity but there are also a lot of ways to lose money. We always overestimate what can happen in a year and we underestimate what can happen in a decade. The important thing is trying to understand where the real wins are occurring, meaning where opportunity has been demonstrated [and] you’re seeing monetisation, you can envision a path towards really, really strong unit economics of the business and start to build up a case for what a business can become.

Rao: The metaverse requires more hardware, more cloud computing. It requires GPUs, which are these special chips that allow for rendering, and virtual physics that will allow for full immersion. So we’ve invested in semiconductor companies that are powering this and that require a massive amount of computing power. We’ve invested in a game engine that allows for digital rendering of the virtual worlds.

Fish: Most of what you hear is actually the metaverse defined on a consumer level, but there are a whole host of ways that the metaverse is likely to evolve for enterprise use cases, too, that could be as big if not bigger than the consumer metaverse is.

Rao: We know that progress doesn’t happen in a straight line. The metaverse is not a flip of the switch; you always have to separate out the hype from reality and what are investable ideas around that reality, and many times the hype comes well before the investable opportunities.

Fish: But we still need building blocks, we still need faster and more connected cloud computing and so the way we invest is we look for building blocks, and building blocks are what allows the innovation to take place.

Rao: I think what’s great about the culture here, the level of collaboration that we have across portfolio managers and analysts, which is great … [with] our time horizon, we’re able to take a long-term view. The depth of resources that we have to actually investigate, research and get after a number of these topics to figure out if they’re real or hype and to really think about it holistically.

Fish: We spend most of our hours thinking about how the world is evolving, how the world is changing, how we might be able to capitalise on that, how we might be able to invest our capital to help affect that change in the world. One of our jobs is to try to predict the future, and we’re investing in the companies that are continuing to build the building blocks today for the future.

 

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

Marketing Communication.

 

Glossary

 

 

 

Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Capital Funds Plc is a UCITS established under Irish law, with segregated liability between funds. Investors are warned that they should only make their investments based on the most recent Prospectus which contains information about fees, expenses and risks, which is available from all distributors and paying/facilities agents, it should be read carefully. This is a marketing communication. Please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions. The rate of return may vary and the principal value of an investment will fluctuate due to market and foreign exchange movements. Shares, if redeemed, may be worth more or less than their original cost. This is not a solicitation for the sale of shares and nothing herein is intended to amount to investment advice. Janus Henderson Investors Europe S.A. may decide to terminate the marketing arrangements of this Collective Investment Scheme in accordance with the appropriate regulation.
    Specific risks
  • Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • The Fund is focused towards particular industries or investment themes and may be heavily impacted by factors such as changes in government regulation, increased price competition, technological advancements and other adverse events.
  • This Fund may have a particularly concentrated portfolio relative to its investment universe or other funds in its sector. An adverse event impacting even a small number of holdings could create significant volatility or losses for the Fund.
  • The Fund may use derivatives towards the aim of achieving its investment objective. This can result in 'leverage', which can magnify an investment outcome and gains or losses to the Fund may be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund or you invest in a share/unit class of a different currency to the Fund (unless 'hedged'), the value of your investment may be impacted by changes in exchange rates.
  • When the Fund, or a hedged share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency, the hedging strategy itself may create a positive or negative impact to the value of the Fund due to differences in short-term interest rates between the currencies.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
Janus Henderson Capital Funds Plc is a UCITS established under Irish law, with segregated liability between funds. Investors are warned that they should only make their investments based on the most recent Prospectus which contains information about fees, expenses and risks, which is available from all distributors and paying/facilities agents, it should be read carefully. This is a marketing communication. Please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions. The rate of return may vary and the principal value of an investment will fluctuate due to market and foreign exchange movements. Shares, if redeemed, may be worth more or less than their original cost. This is not a solicitation for the sale of shares and nothing herein is intended to amount to investment advice. Janus Henderson Investors Europe S.A. may decide to terminate the marketing arrangements of this Collective Investment Scheme in accordance with the appropriate regulation.
    Specific risks
  • Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • This Fund may have a particularly concentrated portfolio relative to its investment universe or other funds in its sector. An adverse event impacting even a small number of holdings could create significant volatility or losses for the Fund.
  • The Fund may use derivatives towards the aim of achieving its investment objective. This can result in 'leverage', which can magnify an investment outcome and gains or losses to the Fund may be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund or you invest in a share/unit class of a different currency to the Fund (unless 'hedged'), the value of your investment may be impacted by changes in exchange rates.
  • When the Fund, or a hedged share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency, the hedging strategy itself may create a positive or negative impact to the value of the Fund due to differences in short-term interest rates between the currencies.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
Denny Fish

Denny Fish

Portfolio Manager | Research Analyst


Doug Rao

Doug Rao

Portfolio Manager


Jun 15, 2022