Weight-Loss Drug Boom Could Boost these ETFs

Experienced investors know when venturing into the biopharmaceuticals space, it pays to ask “What’s next?” The reasoning is simple. Pharmaceuticals producers cannot rest on their laurels because hit drugs eventually face patent cliffs and competition from makers of generics.

Likewise, consumer appetite for optional therapeutics can and does wane. Just look at recent price action in shares of COVID-19 vaccine giants Moderna (MRNA) and Pfizer (PFE). Hint: It’s not pretty because more folks are opting against the jab and/or boosters. In other words, what was hot in the pharma space in 2020 or 2021 isn’t hot today.

What is hot today is weight-loss drugs, such as Novo Nordisk’s (NVO) Ozempic and Wegovy and Eli Lilly’s (LLY) Mounjaro. Indeed, there are investment implications. For example, Morgan Stanley recently estimated that the weight-loss drug market could be worth as much as $77 billion in 2030.

“Social media activity documenting transformative weight loss, together with the establishment of affordable insurance coverage more quickly than anticipated, has helped drive demand for obesity medicines beyond our expectations,” noted Mark Purcell, Morgan Stanley European biopharmaceuticals analyst.

With that in mind, here are some exchange traded funds that could benefit from increased adoption of weight-loss drugs.

VanEck Pharmaceutical ETF (PPH)

As a dedicated pharma fund, the VanEck Pharmaceutical ETF (PPH) makes for predictable beneficiary of the weight-loss drug movement. Importantly, there’s clear confirmation of PPH’s relevance in this conversation as Eli Lilly and Novo Nordisk combine are the ETF’s two largest holdings, combining for over 15% of the fund’s roster.

Helped in part by the aforementioned obesity treatments, both of those stocks have easily outpaced the SP 500 over the past three years and data indicate there’s a long runway for growth for those drugs and new rivals.

“The FDA shows roughly 70% of American adults are obese or overweight. Globally, 750 million people are living with obesity, which causes 5% of deaths, according to the WHO,” according to VanEck research.

U.S. Global Jets ETF (JETS)

The U.S. Global Jets ETF (JETS) may not be the first ETF investors think of when they think of weight-loss drug winners, but the only airline ETF on the market has practical inroads for benefiting from decreased obesity. It’s simple science.

The more obese passengers there are on a particular flight, the great a carrier’s fuel expenses are. While that doesn’t explain why some airlines insist on continued use of heavy drink carts, the fact remains that fuel is this industry’s second-largest input cost after labor and if fuel savings can be realized thanks to Ozempic and friends, that could benefit carriers and JETS investors.

As just one example, JETS holding United Airlines Holdings (UAL) would save $80 million per year if the average passenger lost 10 pounds, according to Jefferies analyst Sheila Kahyaoglu.

SPDR S&P Retail ETF (XRT)

There are corners of both the consumer cyclical and staples sectors that could be vulnerable to broader adoption of weight-loss drugs. Specific to the SPDR S&P Retail ETF (XRT), the fund is home to a few such retailers. However, the fund is home to several athletic apparel retailers that could garner bumps in sales as American adopt healthier lifestyles.

Likewise, reduced need for plus-sized clothing could compel newly trim consumers to begin shopping at XRT member firms such as Nordstrom (JWN), among others.

Ozempic as a catalyst for couture is already gaining traction with the help of celebrities, validating the thesis that ETFs such as XRT could be weight-loss drug winners.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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