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Key Takeaways
- The Roundhill GLP-1 & Weight Loss ETF and the Amplify Weight Loss Drug & Treatment ETF were launched in May to tap into the recent popularity of obesity drugs.
- However, the exchange-traded funds have only attracted $29 million, in the case of Roundhill’s offering, and $2.3 million to the Amplify fund.
- Both funds have a relatively high 0.59% expense ratio and their exposure is heavily concentrated, due to the early-stage nature of the weight-loss drugs currently available.
Two new weight-loss exchange-traded funds (ETFs) launched in May have yet to whet investors’ appetite, possibly due to their expensive fees and concentrated bets.
The Roundhill GLP-1 & Weight Loss ETF (OZEM) and the Amplify Weight Loss Drug & Treatment ETF (THNR) were both launched May 21 to capitalize on the craze for obesity drugs. However, the funds have failed to attract large investments, with Roundhill’s total assets currently at $29 million, while Amplify has pulled in just $2.3 million.
High Expense Ratios, Narrow Exposure
The first problem for the new weight-loss drug ETFs has been a relatively high expense ratio of 0.59% for both. In comparison, the iShares US Healthcare ETF (IYH) has an expense ratio of 0.40% and boasts total assets of $3.3 billion.
Another issue has been the concentrated nature of the weight-loss ETFs, both of which are heavily exposed to two companies: Eli Lilly (LLY) and Novo Nordisk (NVO).
The two companies for now are the only ones with a license to supply GLP-1 drugs for weight loss under the brand names Zepbound and Wegovy. Therefore, the Roundhill ETF currently has a concentration just greater than 41% in Eli Lilly and Novo Nordisk together, compared with about 30% for the Amplify offering. A senior research analyst at Morningstar told the Financial Times that investors will question why they should pay an annual fee of 0.59% to effectively own two stocks.
Continued Obesity-Drug Market Growth Seen
Data from research firm IQVIA said there are currently more than 80 assets for weight loss treatment in clinical-stage trials. The company also said global obesity spending was nearly $24 billion in 2023, marking seven-fold growth in three years. The market is also expected to grow by a compound annual growth rate (CAGR) of 24% to 27% through 2028.
Shares in Eli Lilly have almost doubled over the last year, while Novo Nordisk stock is up about 80% over the same period.