This weight-loss ETF has performed well in its first five months. How does it compare with cheaper alternatives?
By Philip van Doorn
GLP-1 medications will likely expand beyond their current uses for diabetes or weight loss, according to money managers at Tema
A new exchange-traded fund needs an edge to attract investors. This might be its industry focus - a tall order in a crowded market with ETFs covering just about any industry you can imagine. Or the ETF manager might tout its investment-selection method or low expenses. So what are we to think of an ETF that is less than five months old and has performed very well so far?
The Tema Obesity & Cardiometabolic ETF HRTS was launched on Nov. 20 (with shares first available to trade the next day), and it now has about $62 million in assets under management. Tema CEO Maurits Pot described HRTS as "the first obesity and weight-loss drug-focused ETF" and said during an interview with MarketWatch that it remained the only one in that niche.
Comments from Pot and Tema's Chief Investment Officer Yuri Khodjamirian about what they view as a tremendous untapped market for GLP-1 medications and for improving cardiovascular health are below, along with their discussion of the fund's stock selection methodology and top holdings.
Considering the importance of GLP-1 medications for the treatment of Type 2 diabetes and their increasing use for weight loss, this can only be described as a very hot space for investors right now.
With such a short performance record to go on, it is no simple matter to compare HRTS with competing funds. But we can still look at some performance data for insights.
Fund performance
To begin, here are total returns from Nov. 21 through Monday for HRTS, two competing index ETFs covering industry groups within the healthcare sector, the Health Care Select SPDR ETF XLV, which tracks the S&P 500 healthcare sector, and the SPDR S&P 500 ETF Trust SPY, which tracks the full S&P 500. These four ETFs all have lower annual expenses than HRTS, as shown on the table.
Exchange-traded fund or industry group Total return from Nov. 21, 2023 through April 8, 2024 Annual net expenses 3-year return 5-year return 10-year return
Tema Obesity & Cardiometabolic ETF 24.2% 0.7500% N/A N/A N/A
iShares Biotechnology ETF 12.7% 0.4500% -10% 17% 80%
iShares U.S. Pharmaceuticals ETF 14.4% 0.4000% 19% 39% 88%
Health Care Select Sector SPDR Fund 10.9% 0.0900% 28% 69% 195%
SPDR S&P 500 ETF Trust 15.3% 0.0945% 33% 95% 236%
S&P 500 Biotechnology 12.6% -4% 9% 14%
S&P 500 Pharmaceuticals 14.2% 6% 12% 15%
S&P 500 Pharmaceuticals, Biotechnology and Life Sciences 14.4% 3% 14% 14%
Source: FactSet
Below the five ETFs are weighted returns for three industry groups within the S&P 500 healthcare sector, as calculated by FactSet. Returns for longer periods are shown for all except for the new HRTS. All returns are after expenses.
The Tema Obesity & Cardiometabolic ETF has outperformed all of these ETFs during its short life, even though its annualized expense ratio, as an actively managed fund, is the highest by far. The fund's stated annual expenses are 0.99% of assets under management. However, Tema has capped expenses at 0.75% through June 2025.
Longer-term, the Health Care Select Sector SPDR ETF has had the best returns for three, five and 10 years among the industry or sector-focused ETFs on the list. But the SPDR S&P 500 ETF Trust has bested it for all three periods.
Getting back to the Tema Obesity & Cardiometabolic ETF, what if an investor had simply held the fund's current top 10 holdings during its short life?
Company Ticker Country % of Tema Obesity & Cardiometabolic ETF as of April 5 Total return from Nov. 21, 2023 through April 8, 2024
Vertex Pharmaceuticals Inc. VRTX U.S. 5.26% 13.9%
Eli Lilly and Co. LLY U.S. 5.23% 31.4%
Novo Nordisk A/S Class B DK:NOVO.B Denmark 5.01% 25.3%
Amgen Inc. AMGN U.S. 4.48% 3.2%
DexCom Inc. DXCM U.S. 4.20% 28.4%
Cytokinetics Inc. CYTK U.S. 3.14% 133.7%
Edwards Lifesciences Corp. EW U.S. 2.98% 37.9%
Medtronic PLC MDT Ireland 2.87% 7.2%
Chugai Pharmaceutical Co. Ltd. JP:4519 Japan 2.84% 12.4%
Sources: Tema, FactSet
The fund's third-largest holding is Novo Nordisk A/S Class B shares (DK:NOVO.B), listed in Denmark. But for U.S. investors, there is an American depositary receipt (ADR) available, under the ticker NVO (NVO). Khodjamirian explained that if there is a choice between a locally-listed stock or an ADR, the Tema Obesity & Cardiometabolic ETF will hold whichever is more liquid.
The average total return for the fund's top 10 holdings from Nov. 21 through April 8 was 35.3% - ahead of the fund's return of 24.2% return.
When asked to address the relatively high expenses for the ETF and the higher return for some of its components, Pot said Tema was "trying to dial-down the risk" by taking "a more full approach to the GLP-1 space."
Looking ahead
To set the stage for a look ahead at expected revenue and profit growth for the largest 10 holdings of the Tema Obesity & Cardiometabolic ETF, here are expected compound annual growth rates (CAGR) from 2023 through 2025, based on weighted estimates among analysts polled by FactSet for three health industry groups within the S&P 500, the index's healthcare sector and the full index:
Industry group, sector or index Two-year estimated sales CAGR through 2025 Two-year estimated EPS CAGR through 2025
S&P 500 Biotechnology 4.3% 10.1%
S&P 500 Pharmaceuticals 5.5% 27.3%
S&P 500 Pharmaceuticals, Biotechnology and Life Sciences 4.7% 18.6%
S&P 500 Healthcare 6.6% 14.4%
S&P 500 5.8% 12.4%
Source: FactSet
For the fund's top 10 holdings, here are revenue numbers for 2023 and consensus estimates (in local currencies) among analysts polled by FactSet for 2024 and 2025, with expected CAGR through 2025. These are calendar-year numbers, as adjusted by FactSet for companies whose fiscal years don't match the calendar.
Cytokinetics, Inc. Ticker 2023 sales 2024 estimated sales 2025 estimated sales Two-year estimated sales CAGR through 2025 Vertex Pharmaceuticals Inc. VRTX 9,839 10,717 11,726 9.2% Eli Lilly and Co. LLY 34,124 41,449 51,539 22.9% Novo Nordisk A/S Class B DK:NOVO.B 232,261 287,536 346,463 22.1% Amgen Inc. AMGN 28,010 33,042 34,275 10.6% DexCom Inc. DXCM 3,622 4,327 5,152 19.3% Cytokinetics, Inc CYTK 8 9 156 354.8%
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