Obesity Drug Giants Challenge the Appeal of Weight Loss ETFs

📝 SUMMARY: In the rapidly evolving landscape of obesity treatment, the introduction of weight loss exchange-traded funds (ETFs) by Amplify ETFs and Roundhill Investments has sparked a debate among financial experts. These proposed ETFs aim to capitalize on the burgeoning market for obesity drugs, yet some analysts, like Todd Sohn of Strategas ETF, argue that their success heavily depends on the performance of a couple of major stocks, namely Novo Nordisk ($NVO) and Eli Lilly ($LLY). These two pharmaceutical giants are leading the charge in the U.S. obesity drug sector, making them pivotal to the proposed ETFs' performance.

The potential concentration of these ETFs in just a few stocks, particularly in a sector driven by specific blockbuster drugs, has led to skepticism regarding their attractiveness as investment vehicles. Simeon Hyman of ProShares expressed concerns about the necessity of such thematic ETFs when the primary benefits seem to accrue to established players. This sentiment reflects a broader hesitation around thematic ETFs, especially those centered on narrow, innovation-driven themes, given their performance and popularity fluctuations over recent years.

Despite these reservations, the underlying stocks of Novo Nordisk and Eli Lilly have shown remarkable growth in 2024, with gains of 29% and 30% respectively, outpacing the broader Health Care Select Sector SPDR ($XLV), which is up by 7%. This performance underscores the potential of these companies to continue dominating the weight loss drug market.

The discussion around weight loss ETFs versus single-stock investments highlights a critical decision point for investors: whether to seek exposure through more concentrated bets on individual companies leading the obesity drug revolution or to opt for diversified thematic ETFs, despite the concerns over their relevance and timing.

🔍 SOURCE: https://www.cnbc.com/2024/03/13/weight-loss-etfs-may-sit-out-obesity-drug-mania-experts-say.html