The interest in the weight-loss drug GLP-1 has inspired the launch of two exchange-traded funds for investors interested in the markets for the manufacture, sale and distribution of the drug.
Obesity is a significant problem, with about 42% of adults in this country considered to be obese and about 32% overweight, according to the Centers for Disease Control and Prevention. GLP-1, which stands for glucagon-like peptide-1, is a naturally occurring hormone in the body that scientists originally used to help fight diabetes. They later discovered it could also help with weight loss and other health issues such as cardiovascular risk, stroke risk and even addictive behaviors.
Since then, pharmaceutical companies have been manufacturing GLP-1 drugs to help with weight loss. The potential of this market is high, and Goldman Sachs Global Investment Research anticipated that it could easily grow to $100 billion in 2023, about 16 times its current level.
With the market for the drug set to boom, two firms are looking to take advantage. Lisle, Ill.-based Amplify ETFs has introduced the Amplify Weight Loss Drug & Treatment ETF (THNR), an index-based ETF, while New York-based Roundhill Investments has rolled out the Roundhill GLP-1 & Weight Loss ETF (OZEM), which is actively managed.
The Amplify fund tracks the VettaFi Weight Loss Drug & Treatment Index, which includes drug manufacturers and “enablers,” according to Christian Magoon, CEO of Amplify ETFs. The manufacturing side, which receives 70% of the index allocation, includes firms creating or testing GLP-1 drugs, he said.
The enablers, which receive the remaining 30%, are involved in third-party manufacturing for the drug as well as products such as EpiPens that patients use to administer it, according to Magoon.
The index has about 20 holdings, though it’s heavily weighted in Novo Nordisk and Eli Lilly, the two companies involved in the most sales, Magoon said. Those two companies represent almost 30% of the overall index, he added.
"We’re trying to invest in thematics that are really transformative,” Magoon said in an interview with Financial Advisor. “In healthcare, there’s nothing ... that’s this transformative.”
Roundhill’s ETF has about 27 holdings and invests in companies involved in the production or sale of pharmaceutical drugs designed for weight loss and anti-obesity pharmaceuticals related to GLP-1 drugs, according to Dave Mazza, CEO of Roundhill Investments. The fund also features those companies that produce or sell those drugs, and finally those that support the manufacturing and distribution of the drugs, he explained.
“The Roundhill investment committee constructs the portfolio with a proprietary security selection methodology,” Mazza explained in an email to Financial Advisor. “The methodology prioritizes companies with higher levels of thematic relevance, which is based upon research on individual companies’ public disclosures and other publicly available sources.”
While the holdings in the two ETFs might be similar, their investment styles are not. Amplify elected to go with a passive strategy because of how easy it is to create a rules-based test to determine whether a GLP-1-related firm qualifies to be a part of the index, Magoon said.
Roundhill chose to go the more active route because of the potential evolution of the market.
“The OZEM ETF is actively managed to take advantage of the emerging opportunities in a nascent market,” he said.
The firms recognize they are in direct competition with each other but are optimistic that their respective ETFs can stand out. Roundhill believes its ETF provides more well-rounded exposure.
“We believe that OZEM offers the most robust and comprehensive exposure to companies manufacturing GLP-1 and weight-loss drugs and is actively managed to take advantage of emerging opportunities in a nascent market,” Mazza said.
Amplify said its concentration was a benefit and also mentioned that it has a history of being the first to market on many different ETFs.
“We think this is kind of a long path,” Magoon said. “We think over time that the index approach will be a great way to invest.”
Both ETFs went live yesterday and have a 59 basis point expense ratio.
“We think that it's kind of a revolution that you can harvest in your portfolio and hopefully see some positive returns,” Magoon said. “And maybe invest in something that has some positive impact on a lot of serious health issues in the U.S. and abroad.”