Taylor Swift’s record-breaking concert tour this summer and the rapid growth in streaming services demonstrate that the music business continues to be highly lucrative. However, certain aspects of the industry have been challenging to invest in, particularly companies that own catalogs of songs and Korean K-Pop producers.
Recognizing this gap, music industry veteran David Schulhof recently launched the MUSQ Global Music Industry ETF (ticker: MUSQ), a fund that has just begun trading on the New York Stock Exchange. Schulhof aims to make the music industry accessible to the general public, as it was previously only available to private investors.
In recent years, major music labels like Warner Music Group (WMG) and Universal Music Group (UMG.Netherlands) have gone public, along with several K-Pop production companies, which represent one of the fastest-growing segments of the music industry.
MUSQ offers investors exposure to a diverse range of companies across various sectors, including streaming platforms like Spotify Technology (SPOT), equipment manufacturers such as Sonos (SONO), event management companies like Live Nation Entertainment (LYV), music labels, and radio broadcasters.
While foreign music companies may pose challenges for U.S. investors, MUSQ provides access to several of them. Approximately half of the index’s assets are held in non-U.S. names, with 17% specifically allocated to South Korean companies.
To create the index, Schulhof collaborated with EQM Indexes, a company specializing in building ETFs focused on different themes, including cannabis and social justice. He licensed the index to Exchange Traded Concepts to make it available for trading on the New York Stock Exchange. In an interview, Schulhof emphasized that he views music as a liquid alternative investment that is not directly correlated with the broader economy.
Investing in the music industry through MUSQ opens up exciting opportunities for individuals to be a part of this thriving sector and capitalize on its potential for growth.
Music as an Essential Component of Life
Music is not just a form of entertainment, but an indispensable part of our lives. Just like food and water, it has the power to nourish our souls and uplift our spirits. Recognizing its significance, Goldman Sachs has recently released a report that predicts a 7.3% annual growth in the music industry through 2030. This projection comes as music streaming prices increase and companies find ways to encourage superfans to invest more in their favorite artists.
A Pure-Play on Music with Diverse Holdings
The fund in question positions itself as a pure-play on music. However, it does have a significant investment in stocks that generate most of their revenue from other products and services. Key players in the fund include Amazon.com (AMZN), Apple (AAPL), and Alphabet (GOOGL), which collectively represent over 20% of the portfolio. Although these companies are major players in the music industry, their primary sources of income lie elsewhere.
Market Cap Weighted with Capped Weightings
The fund follows a market cap weighted index approach, meaning that stocks with higher market capitalization hold greater importance in the portfolio. However, to ensure balanced diversification, each stock’s weighting is capped at 7% during regular quarterly rebalancings. This approach prevents any single stock from becoming disproportionately influential.
Fee Structure and Performance
Currently, the gross expense ratio for the fund stands at 0.92%. However, due to a temporary fee waiver, the net fee amounts to 0.78%. This fee structure is subject to change based on future developments within the fund.
The MUSQ ETF commenced trading on Friday, attracting considerable attention from investors. In fact, the index itself has already shown impressive growth, surpassing 20% this year alone. However, it’s essential to note that there is a divergence in performance among individual holdings within the index.
Industry Dynamics and Opportunities
While music labels, such as Warner, have faced challenges in light of a downturn in the advertising market, streaming platforms have experienced greater success. Spotify, for instance, has seen its stock rise by 100% thanks to effective cost-cutting measures and significant growth in its subscription base.
In conclusion, music’s enduring appeal and potential for growth present a compelling investment opportunity. As the industry continues to evolve, investors can explore avenues to capitalize on these developments.
