The Underperformance of the Global X Video Game & Esports ETF (HERO): A Misalignment with High-Growth and Innovation-Driven Objectives

The Global X Video Games & Esports ETF (HERO) was designed to capitalize on the explosive growth of the gaming and esports industries, targeting companies at the forefront of innovation. However, recent data and industry analysis reveal a stark disconnect between the fund’s stated objectives and its actual performance, raising questions about its ability to deliver on its promise of high-growth exposure.

Portfolio Concentration and Lack of Key Innovators

HERO’s portfolio is heavily concentrated, with the top 10 holdings accounting for 55.69% of total assets as of Q2 2025 [1]. While Electronic Arts Inc. (EA) is its largest holding at 6.70%, the fund lacks significant exposure to emerging innovators driving the sector’s transformation. For instance, companies like NVIDIA Corp. (NVDA) and Microsoft Corp. (MSFT), which are pivotal in AI integration and cloud gaming, are absent from HERO’s holdings [5]. This omission is critical, as AI and cloud infrastructure are now central to the gaming industry’s evolution [2].

In contrast, peer ETFs like the VanEck Video Gaming and eSports ETF (ESPO) have embraced a broader scope, including holdings such as Tencent and NVIDIA, which have contributed to ESPO’s 24.83% year-to-date return as of 2025—far outpacing HERO’s 3.91% [3]. HERO’s inability to capture these high-growth drivers underscores a strategic misalignment with the innovation-driven goals it claims to pursue.

Industry Trends and HERO’s Missed Opportunities

The global video gaming market has surged to $178 billion in 2025, fueled by major game launches, AI adoption, and regulatory easing in key markets like China [2]. Yet, HERO’s portfolio remains anchored to traditional gaming giants rather than the disruptive forces reshaping the industry. For example, while Roblox Corp. and AppLovin Corp. have thrived in mobile and social gaming, their weight in HERO is minimal compared to their influence in the sector [4].

Moreover, the Solactive Video Games & Esports Index, which HERO tracks, imposes a minimum market cap of $200 million and average daily turnover requirements [1]. These criteria exclude smaller, high-potential startups that could offer asymmetric growth opportunities. By adhering rigidly to these thresholds, HERO sacrifices agility in favor of stability—a trade-off that undermines its innovation mandate.

Fee Structure and Performance Drag

HERO’s expense ratio, while not explicitly detailed in the research, is criticized as “high” relative to its peers [1]. Combined with its non-diversified structure (investing at least 80% in the underlying index), this creates a compounding drag on returns. For context, the AOT Growth and Innovation ETF (AOTG), which focuses on low-cost, high-growth tech firms, delivered a 9.17% return in Q2 2025, outperforming HERO despite a more diversified approach [2].

Broader Market Context and Peer Comparisons

The underperformance of HERO becomes even more pronounced when benchmarked against broader innovation ETFs. The ARK Innovation ETF (ARKK), for instance, surged 47.9% in Q2 2025, driven by bets on AI and blockchain pioneers like Coinbase Global (COIN) and Roblox (RBLX) [4]. Similarly, the Invesco QQQ ETF (QQQ), which tracks the Nasdaq-100, returned 22.9% in the same period, benefiting from semiconductor leaders like NVIDIA [4]. These results highlight HERO’s narrow focus as a liability in a rapidly diversifying innovation landscape.

Conclusion: A Call for Reevaluation

The Global X Video Games & Esports ETF (HERO) was conceived to harness the dynamism of gaming and esports, yet its underperformance reflects a fundamental misalignment with high-growth and innovation-driven objectives. From a lack of exposure to AI and cloud infrastructure leaders to a rigid index methodology that excludes disruptive startups, HERO’s structural limitations hinder its ability to capitalize on the very trends it aims to exploit. For investors seeking true innovation exposure, broader, more agile ETFs like ESPO, ARKK, or AOTG present a compelling alternative.

Source:
[1] Global X Video Games & Esports ETF (HERO) - Yahoo Finance [https://finance.yahoo.com/quote/HERO/]
[2] AOT Growth and Innovation ETF: AOTG ETF [https://aotetf.com/]
[3] ESPO vs. HERO: Head-To-Head ETF Comparison [https://etfdb.com/tool/etf-comparison/ESPO-HERO/]
[4] Stock Funds End Roller Coaster Quarter on a High Note [https://www.morningstar.com/funds/stock-funds-end-roller-coaster-quarter-high-note]