The Challenges Facing New Weight-Loss Drug ETFs

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 capture investors’ interest, 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 on May 21 to capitalize on the growing demand for obesity drugs. However, the funds have struggled to attract significant investments, with Roundhill’s total assets currently at $29 million, while Amplify has only pulled in $2.3 million.

High Expense Ratios, Narrow Exposure

The primary issue for the new weight-loss drug ETFs has been their relatively high expense ratio of 0.59% for both funds. In comparison, the iShares US Healthcare ETF (IYH) has an expense ratio of 0.40% and boasts total assets of $3.3 billion. Another concern has been the concentrated nature of the weight-loss ETFs, with both heavily exposed to just two companies: Eli Lilly (LLY) and Novo Nordisk (NVO).

These two companies currently hold licenses to supply GLP-1 drugs for weight loss under the brand names Zepbound and Wegovy. As a result, the Roundhill ETF has a concentration just over 41% in Eli Lilly and Novo Nordisk combined, while the Amplify offering has around 30% exposure. Investors may question why they should pay an annual fee of 0.59% to effectively own only two stocks, as pointed out by a senior research analyst at Morningstar in an interview with the Financial Times.

Continued Obesity-Drug Market Growth Expected

Data from research firm IQVIA indicates that there are currently over 80 assets for weight loss treatment in clinical-stage trials. Global spending on obesity treatments reached nearly $24 billion in 2023, marking a seven-fold increase in just three years. The market is projected to grow at a compound annual growth rate (CAGR) of 24% to 27% through 2028.

Shares in Eli Lilly have nearly doubled over the past year, while Novo Nordisk stock has seen an approximately 80% increase during the same period.

Despite the challenges faced by the new weight-loss drug ETFs, the continued growth of the obesity-drug market suggests that there may still be opportunities for investors in this sector. As more treatments enter clinical trials and global spending on obesity drugs continues to rise, there could be potential for these ETFs to attract more interest in the future.

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