Key Takeaways
- Following Meta’s rebrand, asset managers rushed to bring products to market but most metaverse funds have since closed or materially changed strategy.
- As marketed to investors, the metaverse failed to gain meaningful user traction or establish a compelling commercial model.
- And portfolios exposed to the metaverse were difficult to distinguish from broad technology funds.
When the company once known as Facebook went all in on the metaverse back in 2021, fund companies scrambled to launch funds to take advantage of the new tech theme. But few of those funds even survived long enough to see Meta Platforms META shutter its metaverse strategy, which once promised an immersive digital economy expected to reach vast scale within a decade.
This month, Meta Platforms announced it is shutting down Horizon Worlds, its flagship social VR platform, and shifting focus toward artificial intelligence, book ending what has proved to be an expensive misadventure. Most metaverse funds have since closed or materially changed strategy.
Why Metaverse Investing Failed to Deliver Returns
While no one can predict how technologies will evolve, there were clear signs that the metaverse was unlikely to deliver on its investment promise.
Investing in a theme is effectively a three-part bet: Identifying the right theme, selecting the right exposure, and entering at the right time. With the metaverse the core issue was the theme itself. As marketed to investors, the metaverse failed to gain meaningful user traction or establish a compelling commercial model. The warning signs were visible early.
A robust investment theme should be clearly defined, commercially grounded, and solve a tangible real-world problem. The metaverse struggled on all three counts.
Metaverse ETFs or Just Another Tech Bet?
There was no clear consensus on what constituted a “metaverse company,” reflected in the low overlap between fund holdings. Even among surviving products, overlap remains limited: L&G and iShares metaverse ETFs, for example, share only around 30% of holdings.
In many cases, portfolios were difficult to distinguish from broad technology funds. If the industry cannot agree on the investable universe, the theme lacks structural integrity.
Commercially, the narrative was long on ambition but short on monetization. Hardware costs remained high, while other revenue channels failed to scale as demand did not materialize. For most users, it remained unclear what problem immersive virtual worlds were solving better than existing technologies.
Thematic ETFs: Timing, Hype, and Investor Risk
The episode also highlights a broader structural issue. By the time a theme is identifiable, investable, and packaged into a fund, a meaningful portion of the growth is often already priced in. At the same time, providers face pressure to launch early and capture first-mover advantage, increasing the risk of premature, speculative products.
The metaverse fits this pattern. Following Meta’s rebrand, asset managers rushed to bring products to market—56 new funds were launched globally in 2021 and 2022 alone—effectively positioning for a wave of adoption that never arrived.
Meta’s Shift From Metaverse to AI Explained
Yet the metaverse has not disappeared, it has simply failed to cohere as a stand-alone theme.
Many of the underlying technologies, from VR hardware to digital infrastructure, remain relevant. But their commercial success has emerged elsewhere, particularly in areas linked to artificial intelligence.
This creates a paradox. Some “metaverse” stocks—and even funds—have performed well, not because of metaverse adoption, but because they were effectively proxies for broader technology and AI exposure. The L&G Metaverse ETF, for example, has outperformed the broader technology market after fees by 79% since its launch in late 2022.
Meta Platforms itself illustrates the point. Despite disappointing results in virtual reality, it has been a major driver of global equity returns since 2022, reflecting its position within the AI ecosystem rather than its costly push into the metaverse.
That disconnect is telling. If the returns of a thematic portfolio are not meaningfully linked to the development of its stated theme, the investment case is fundamentally weak.
What Makes a Successful Investment Theme?
The metaverse episode is ultimately a reminder that compelling narratives do not necessarily translate into investable themes. The further a concept sits from observable cash flows, the greater the risk that it rests on storytelling rather than fundamentals.
Thematic investing can be powerful, but only when the target theme clearly defined, commercially grounded, and solving a tangible real-world problem.
