ETFs are betting big on weight-loss drugs, but industry observers question their long-term potential

With more than 10% of the world’s population now suffering from obesity, stock prices of companies offering the latest weight-loss drugs have surged.

However, investors considering exposure to recently launched weight-loss exchange-traded funds (ETFs) should evaluate their potential, according to industry observers.

THE Roundhill GLP-1 Weight Loss ETF (NASDAQ: OZEM) and the Amplify Weight Loss Drugs and Treatments ETF (NYSE: THNR) debuted on May 21 with an expense ratio of 0.59%.

Both ETFs have significant weightings in sector giants Eli Lilly Et Cie (NYSE: LLY) and Novo Nordisk A/S (NYSE:NVO), with OZEM and THNR allocating approximately 40% and 30% to these companies, respectively.

Eli Lilly and Novo Nordisk are the only companies licensed to provide GLP-1 agonist medications for weight loss.

Recent trials have shown that they can also reduce the risk of heart attacks and strokes, and there are anecdotal reports of their effectiveness in reducing cravings for substances like alcohol.

The Financial Times noted that industry observers are cautious about the long-term prospects of these drugs.

Kenneth Lamontsenior research analyst at Morningstar, said “solving obesity” was a long-sought goal that had many setbacks.

A VettaFi research article highlighted the historical pattern of promising weight-loss drugs that eventually faced serious problems, such as the 1933 drug 2,4-Dinitrophenol and various amphetamines over the decades.

The Financial Times adds that investors should also be aware that the current advantages of Eli Lilly and Novo Nordisk could be challenged by new drugs in development, which could offer advantages such as less frequent administration, oral options instead of injections and fewer side effects.

It would also be wise to consider ETFs to tap the potential of the weight loss drugs market.

THNR, for example, includes companies expected to soon bring new drugs to market and Fujifilm Holdings, which makes injection devices currently in short supply.

Christian MagoonCEO of Amplify, believes that this shortage indicates potential growth in the GLP-1 injectable drug market, especially since many insurance companies do not cover these drugs as part of regular medical expenses.

Dave MazzaCEO of Roundhill, stressed the importance of active management in his fund, given the rapid evolution of the sector.

However, Lamont questioned whether ETFs such as OZEM and THNR were the best approach, noting their concentrated bets and questioning the need to pay a 0.59% annual fee when investors could get similar exposure by directly purchasing a few key stocks.

NVO, LLY Price action: Shares of Novo Nordisk are up 0.25% at $142.76 and shares of Eli Lilly are down 0.27% at $835.02 at last check Friday.

Read next: Ozempic and Wegovy create a domino effect as new products emerge across industries to capture new consumer habits

Disclaimer: This content was partially produced using AI tools and was reviewed and published by Benzinga editors.

Photo by: Yunmai via Unsplash

Source