Novo Nordisk's Ozempic, Wegovy Boost Pharmaceutical ETFs

A study in August that found that two weight-loss drugs can also reduce the chance of a heart attack or stroke has had ripple effects across many ETFs.

The findings have boosted pharmaceutical exchange-traded funds and a fund that holds a large number of shares of Danish drug maker Novo Nordisk, while hurting funds with medical-device stocks and food and beverage shares.  

The study found that diabetes-come-weight loss drugs Ozempic and Wegovy cut the risk of cardiac events by 20%. The two drugs are both made by Novo Nordisk and are different brand names for the same drug, Semaglutide.

Semaglutide was used to treat diabetes before research found that in higher doses it was effective for weight loss. A similar drug, Tirzepatide, brand name Mounjaro, is being tested for weight-loss applications by U.S. pharmaceutical company Eli Lily. 

Pharmaceutical ETFs are expected to benefit from this new class of drugs, while the prices of shares of medical-device companies have fallen as demand for their products is expected to drop if the new drugs successfully curb obesity and its accompanying health effects.

Food ETFs, meanwhile, have fallen, while the Novo Nordisk-dominated iShares MSCI Denmark ETF (EDEN) has outperformed. 

Since the Aug. 8 study, the VanEck Pharmaceutical ETF (PPH) has risen by 5.5%, compared with the global healthcare sector’s 0.3% rise, as measured by the iShares Global Healthcare ETF (IXJ). Medical-device makers have been hammered, with the iShares U.S. Medical Devices ETF (IHI) down by more than 14% over the same period, as investors expect demand for their products to drop if these drugs are effective at curbing obesity.  

Food and Beverage ETFs Down 

Another loser from the Ozempic boom has been food and beverage stocks, because one of the primary mechanisms of the drugs is curbing appetite. The Invesco Food & Beverage ETF (PBJ) is down by 11% while the First Trust Nasdaq Food & Beverage ETF (FTXG) has fallen by 18% since Aug. 8. 

Garden of EDEN 

EDEN has also been a big beneficiary of the surge in Novo Nordisk, which, for a time, surpassed luxury conglomerate LVMH as the largest company in Europe by market cap. EDEN has soared by 10% since Aug. 8. That compares with a 3% gain for the iShares MSCI ACWI ETF (ACWI), a proxy for global stocks and a 4.1% bump in price for the Vanguard FTSE Europe ETF (VGK) a proxy for European stocks. 

EDEN tracks an index of the largest Danish companies and has a roughly 25% allocation to Novo Nordisk. That allocation belies the surge in Novo Nordisk's stock, as each holding is capped at 25%. The uncapped MSCI Denmark Index has a 61% allocation to the company. 

“Novo Nordisk's role on the overall stock market calls to mind the impact of Taiwan semiconductors, so we've seen versions of this before,” said Ryan Jackson, a research analyst at Morningstar.

Both Novo Nordisk and TSM are the largest holdings in their respective country ETFs, with TSM making up 22% of the iShares MSCI Taiwan ETF (EWT), more than four times the next largest holding. 

Contact Gabe Alpert at [email protected]