ETFs
Why Investors Didn’t Treat Two New Weight Loss ETFs
Key takeaways
- The Roundhill GLP-1 & Weight Loss ETF and the Amplify Weight Loss Drug & Treatment ETF were launched in May to exploit the recent popularity of obesity drugs.
- However, exchange-traded funds only attracted $29 million, in the case of Roundhill’s offering, and $2.3 million for the Amplify fund.
- Both funds have a relatively high expense ratio of 0.59% and their exposure is highly concentrated, due to the early-stage nature of the weight loss drugs currently available.
Two new weight loss diets exchange-traded funds (ETFs) launched in May have yet to whet investors’ appetites, likely due to their high fees and concentrated bets.
The Roundhill GLP-1 ETF and weight loss (ÖZEM) and the Amplify Weight Loss Drug & Treatment ETF (THNR) were both launched on May 21 to capitalize on the craze for obesity medications. However, the funds have failed to attract big investments, with Roundhill’s total assets currently standing at $29 million, while Amplify has only raised $2.3 million.
High expense ratios, narrow exposure
The first problem with the new weight-loss drug ETFs was a relatively high cost. spending rate of 0.59% for both. In comparison, the iShares US Healthcare ETF (IYH) has an expense ratio of 0.40% and has total assets of $3.3 billion.
Another problem has been the concentrated nature of weight loss ETFs, both of which have heavy exposure to two companies: Eli Lilly (THERE IS) and Novo Nordisk (NVO).
The two companies are currently the only ones licensed to supply GLP-1 weight loss drugs under the brand names Related to Zep And Wegovy. As a result, the Roundhill ETF currently has a concentration of just over 41% in Eli Lilly and Novo Nordisk combined, compared to around 30% for the Amplify offering. A senior research analyst at Morningstar told the Financial Times that investors would wonder why they should pay an annual fee of 0.59% to actually own two stocks.
Continued growth of the obesity drug market
Data from research firm IQVIA indicates that there are currently more than 80 active ingredients for weight loss treatment in clinical trials. The company also said global spending on obesity will rise to nearly $24 billion in 2023, a seven-fold increase in three years. The market is also expected to grow by compound annual growth rate (CAGR) from 24% to 27% until 2028.
Shares of Eli Lilly have nearly doubled over the past year, while shares of Novo Nordisk are up about 80% over the same period.