OZEM, Weight Loss Drug ETFs: Should You Invest?

Weight-loss drug exchange-traded funds offer a targeted way to invest in the growing weight-loss market, but these ETFs come with the inherent risks of a new and potentially volatile investment. 

Learn the pros and cons of investing in these ETFs, such as the newly launched GLP-1 Weight Loss ETF (OZEM), as well as the growth potential for the weight-loss drug industry. 

What Are Weight Loss Drug ETFs?

Weight-loss drug ETFs are a new and niche type of fund that specifically focuses on companies developing and marketing medications that help people shed pounds. They offer investors a way to gain exposure to the growing market through a single investment. 

Here's a breakdown of weight-loss drug ETFs: 

• New investment vehicle: These ETFs are a recent development, reflecting the increasing interest and potential of weight-loss medications, particularly GLP-1 drugs. 
• Targeted investment: Unlike broad healthcare ETFs, weight-loss drug ETFs concentrate on companies involved in this specific segment of the pharmaceutical industry. 

Pros and Cons of Weight Loss Drug ETFs

Before buying shares of a new weight-loss drug ETF, investors should consider the potential benefits, such as growth potential, as well as the potential drawbacks, including regulatory hurdles: 

Pros

• Targeted exposure to a growing market: The weight loss drug market is projected to experience significant growth due to rising obesity rates and increasing demand for effective weight management solutions. ETFs offer a way to capitalize on this potential growth with a single investment. 
• Diversification: While focused on a specific sector, weight-loss drug ETFs still provide some diversification by holding shares in multiple companies involved in developing, manufacturing, or distributing weight-loss drugs. This spreads risk compared to picking individual stocks. 
• Convenience: ETFs offer a convenient way to invest in this sector without having to research and pick individual companies. They trade similarly to stocks, allowing for easy buying and selling. 
• Potential for high returns: According to Amplify ETFs, the GLP-1 drug market is anticipated to grow from $6 billion to $100 billion by 2030. If the weight-loss drug market booms, weight-loss drug ETFs may see higher returns.  

Cons

• New and volatile: Weight-loss drug ETFs are a new investment option, and as such, they might be more volatile than established ETFs. This means the price could fluctuate significantly in the short term. 
• Limited track record: Due to their recent launch, there's a limited track record to assess their long-term performance. How these ETFs will perform over several years is uncertain. 
• Dependence on a few companies: Some weight-loss drug ETFs are heavily concentrated on just a few companies, such as Eli Lilly and Company (LLY) and Novo Nordisk (NVO). If one or two companies underperform, it could significantly impact the entire ETF's value. 
• Regulatory hurdles: The development and approval process for new drugs can be lengthy and complex. Regulatory setbacks could hinder the growth of the sector and impact the ETF's performance. 

Weight Loss Drug ETFs List

As of May 28, there were three weight-loss drug ETFs on the market: 

• Tema Obesity & Cardiometabolic ETF (HRTS): Launched in November, this actively managed ETF seeks to provide long-term growth of capital by investing in companies leading the fight against obesity and cardiometabolic diseases. HRTS has $62 million in assets under management and its expense ratio is 0.75%.
• Amplify Weight Loss Drug & Treatment ETF (THNR): This newly launched fund provides access to global companies involved in the pharmaceutical manufacturing of GLP-1 agonist or related businesses. THNR has $1.5 million in AUM and its expense ratio is 0.59%.
• Roundhill GLP-1 & Weight Loss ETF (OZEM): Another newly launched fund, OZEM is an actively-managed ETF that focuses on GLP-1 weight-loss drug manufacturers with more than 40% of the portfolio allocated to pharmaceutical companies, Eli Lilly and Novo Nordisk. OZEM has $3.5 million in AUM and its expense ratio is 0.59%. 

What Are GLP-1 Drugs?

GLP-1 drugs, also known as glucagon-like peptide-1 receptor agonists, are a relatively new class of medications used for both type 2 diabetes and weight management. They work by mimicking the effects of a natural hormone in your body called glucagon-like peptide-1 (GLP-1). 

Here's a deeper dive into how GLP-1 drugs work: 

• Mimicking a natural hormone: GLP-1 is a hormone produced in the gut that plays a role in regulating blood sugar, appetite and satiety (feeling full). GLP-1 drugs essentially act like GLP-1, stimulating the GLP-1 receptors in your body. 
• Impact on blood sugar: In people with type 2 diabetes, GLP-1 drugs help regulate blood sugar by stimulating insulin release after eating and suppressing glucagon, a hormone that increases blood sugar. 
• Impact on weight management: For weight management, GLP-1 drugs work by reducing appetite and increasing feelings of fullness. They may also slow down the emptying of your stomach, keeping you feeling satisfied for longer and potentially reducing calorie intake. 
• Available as injectable medications: GLP-1 drugs are currently only available as injectable medications. They are typically administered once a week or less. 
• Examples of GLP-1 drugs: Some popular GLP-1 drugs include semaglutide (Wegovy and Ozempic), liraglutide (marketed for diabetes as Victoza), and dulaglutide (Trulicity). 
• Not guaranteed: Like other weight loss medications, GLP-1 drugs work best when combined with a healthy diet and exercise program for sustainable weight loss. These drugs may also produce side effects, such as nausea and stomach pain.  

Bottom Line on Weight Loss Drug ETFs

Weight-loss drug ETFs offer a way to invest in a potentially high-growth market, but they come with inherent risks due to their newness and focus on a specific sector. Investors should carefully consider their risk tolerance and investment goals before investing in these ETFs. Investors should also research the specific holdings within the ETF and understand the broader factors affecting the weight-loss drug market.