MW New ETF invested in Ozempic maker and exposed to other obesity drugs falls in first day of trade
By Christine Idzelis
Tema Cardiovascular and Metabolic ETF, which holds Ozempic maker Novo Nordisk, falls in its first day of trading
A new ETF hit the market Tuesday, creating buzz for its exposure to popular weight-loss drugs, while expanding the roster of thematic ETFs available for investors willing to pay up for stock-picking prowess.
The Tema Cardiovascular and Metabolic ETF, HRTS which launched Tuesday, seeks to invest in companies involved in the fight against diabetes, obesity and cardiovascular diseases. Novo Nordisk A/S (DK:NOVO.B), Eli Lilly & Co. $(LLY)$, Amgen Inc. $(AMGN)$ and Vertex Pharmaceuticals Inc. $(VRTX)$ were among the equity fund's top holdings on Nov. 20, according to data on Tema's website. Shares of the fund closed down about 1% on Tuesday, as the broader stock market sold off, according to FactSet.
Novo has made a splash with its weight-loss drugs Ozempic and Wegovy, while Eli Lilly's Mounjaro is a treatment in the same category, said Jane Edmondson, head of thematic strategy, in a phone interview.
"Big pharma is getting into this," she said of such weight-loss drugs. "But Novo and Eli are the only ones that currently have drugs on the market that people are taking for this purpose."
Thematic exchange-traded-funds are typically more expensive than "regular core" ETFs investing in stocks and bonds, even as many passively track indexes, according to Edmondson. Actively managed ETFs, run by professional stock pickers with expertise in a particular theme, tend to have even higher costs, she said.
The Tema Cardiovascular and Metabolic ETF has a net expense ratio of 0.75%, its fact sheet shows.
That's more expensive than the "asset weighted average expense ratio" of 0.4% for active ETFs, according to Aniket Ullal, head of ETF data and analytics at CFRA Research. The simple average cost of actively managed ETFs is 0.67% while the median is 0.60%, he said in an email to MarketWatch.
The new Tema fund is managed by Tema's David Song, a medical doctor whose career investing in biotechnology and healthcare has included positions at Rockefeller Capital Management as well as hedge fund firms Millennium Management and Balyasny Asset Management, the fact sheet shows.
While there are other pharma-focused ETFs, such as the iShares U.S. Pharmaceuticals ETF IHE, said Ullal, the actively managed Tema Cardiovascular and Metabolic ETF is "differentiated because of its specific focus." The iShares fund, which tracks an index of U.S. pharmaceutical companies, is less expensive with an expense ratio of 0.4%.
As far as themes go, Edmondson pointed to the Global X Health & Wellness ETF BFIT as being "kind of similar" to the Tema Cardiovascular and Metabolic ETF in that it considers well-being. The Global X fund, which tracks an index of companies that promote physical well-being, has an expense ratio of 0.5%, according to FactSet data.
An exchange-traded fund that comes to market with an innovative theme unavailable elsewhere in the industry "can command a higher expense ratio," said Edmondson. "Active ETFs are becoming increasingly more common."
The high-profile ARK Innovation ETF ARKK, an actively managed thematic fund launched by Cathie Wood's ARK Investment Management in 2014, has an expense ratio of 0.75%.
Read: Cathie Wood's ARK Innovation ETF in 'breakout mode' after triggering bullish pattern
"Thematic funds have risen in prominence globally since the coronavirus pandemic," Morningstar said in a research note dated Nov. 15 that looked at both mutual funds and ETFs.
"This distinct grouping of funds, which attempt to harness one or more secular growth themes ranging from artificial intelligence to aging populations, has more than doubled its assets under management globally since 2018," said Morningstar. "Thematic ETFs, which can be traded on exchange throughout the day and tend to invest in more focused baskets of stocks, are often favored as tools for making tactical bets and can attract large flows."
The Dow Jones Industrial Average DJIA and S&P 500 SPX each finished 0.2% lower on Tuesday, while the technology-heavy Nasdaq Composite COMP dropped 0.6%. The S&P 500 and Nasdaq each snapped five straight days of gains.
-Christine Idzelis
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(END) Dow Jones Newswires
November 22, 2023 08:01 ET (13:01 GMT)
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