ETF Edge - ETFs jumping on weight loss bandwagon… plus, the “Mag 7” of China? 5/20/24

Episode Date: May 20, 2024

With the weight loss trade still hot on Wall Street, a couple of new ETFs are hoping to follow suit this week. We’ll talk to the person behind one of them. Plus, taking a concentrated second look at China as most investors stay weary.        Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQQ, supporting the innovators changing the world. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange traded funds, you are in the right place. Every week we're bringing you interviews, market analysis and breaking down what it all means for investors. I'm your host, Bob Kazani. Weight-loss drugs are among the hottest investments on Wall Street,

and a pair of new ETFs are hoping to follow suit. Here's my conversation with Dave Mata from Rounda, from Roundhill, launching one of those funds this week at Todd Rosenbluth from Vetify. Dave Goldman Sachs research, I look at some of this research. It's amazing. Obesity treatment market could expand by more than 16 times its current size. It could be a hundred billion dollar business by 2030. A lot of companies are obviously scrambling to get into this business. So what's in this ETF and you've made it actively managed? No index. And why did you make that decision? That's correct. Well, look, the obesity

challenges an epidemic, right? And if we include people that are overweight, nearly 74% of Americans are obese or overweight. And so the opportunity to address that is huge. And there's a game changer, and that game changer is GLP1 drugs. And we are at Roundhill with the launch of OZM focused on identifying the companies at the forefront of that. And the two big ones right now, and the market certainly has sniffed those out, is Lilly and Novo with drugs in market. But there are others coming. And so the ability to have active management to overweight the companies that are actually in market producing the drugs and then go down the line to identify those that are in particular phases is powerful. And we're looking at what you're going. Again, these are launching tomorrow.

So this is not even available yet. But Novo Nordisk and Lily, the two winners, are 40% of the fund here. And we see some other ones there, Zeeland, Inovent, and Chugai. I don't know Chugai. The Chinese firm, is that right? Yeah. Taking up the rear here, The thing that I'm wondering about is Novo Nordisk is up 300% in the last two years. That ship has already sell. Lilly's up almost 300% too. So that's almost 40% of the ETF here, essentially. Your bet here is that there are other companies that are going to come in and also sort of move the same way they did.

Is that the idea here? Yeah, you're absolutely right. So, yeah, certainly those stocks are up considerably over the last year, but we're still in the early days. It's a little bit like thinking about Navidia with AI. They just have a head start. These companies pivoted to focus on diabetes

and weight loss drugs a few years ago. We're able to get in market and produce results that are remarkable, 15% weight loss on average over four to six months. There's actually a drug that Amgen's working on with 25% weight loss potential. So these are again, real game changers and they're going mainstream.

And the marketplace has plenty of room for growth with other companies coming in, whether that with more powerful drugs or with things that actually you don't need to have an injectable. Todd, I should also note that the Amplify is also launching a weight loss ETF this week. But you know what's remarkable to me? I wonder what your thoughts are. It seems like the ETF business has been a bit slow launching products in the weight loss space.

You know, we had a, as I mentioned, Amplify before, but these have been out. Oh, two years. Essentially, we've had ideas about this already. And yet these are the first two really large ones that are out there in the weight loss space. You have any thoughts on that? Usually the ETF business is pretty quick. There currently is one ETF that's been trading. It's been trading for a number of months.

It's from TEMA. The ticker is H.RTS. And it's gathered already $60 million. But you're right. This is a long-term trend. And the ETF industry does a great job. usually of spotting that trend and then we see two, three, four, probably six or seven products that we'll see in the next year or so that are focused on this trend. But what's interesting

is we're going to see different ways of tackling it. So Dave's fund, the Roundhill Fund that's coming out tomorrow is going to be concentrated in a couple of stocks as we showed on the screen, but with a few other ones and is actively managed. The HRTS, the TMA ETF, is actively managed. It has over 40 stocks, both U.S. and non-U.S. And folks can look inside the portfolio. And the Amplify one is actually going to be tracking an index from my firm VETify. I'm not connected directly to it, but indirectly. And it's going to be an index-based approach focusing on the drug companies,

as well as the enablers within the healthcare space. So three different ways to tackle that same obesity challenge. Yeah. This is a little bit to me sort of like what happened with pot ETFs into a certain set, with crypto in that there was an awful lot of interest, but there wasn't an awful lot necessarily to buy, or is it a little different? The business is there. We can identify it. We know two big winners already. We're just not sure what, if any, winners there are going to be out there, right? Right. It's still early stages. And so the drug pipeline is still progressing. There's a number of

companies that are in earlier stages of development. And then, as I mentioned, there are enablers. And so you can benefit from that with, at least from the Amplified one, of having enablers in the portfolio, and I'm confident. Roundhill has that exposure and opportunity, as does the team of one with active management. But yes, we are early stages. We'll find out who those winners are going to be in three to five years. And why people want to invest in thematic ETFs is if they have patience, they'll put a small slice of their broader portfolio into something like artificial intelligence or cannabis or cybersecurity.

or robotics and hope that they get the benefits of diversification by having a handful of winners, not just one winner or potential loser. Dave, I don't know if you notice, but we, a company, him and Hearst Drugs today, HIMS is the symbol, if you can put that up, was up today. They announced a new compound GLP weight loss injection. Yeah, compound, which means what? Well, super exciting. So basically, GLP1 drugs are actually very hard to access, and they're incredibly expensive and Hymns is a company you know basically offering kind of virtual health care but getting into the drug space compounding pharmacy is where they kind of mix and match different chemicals to kind of create something similar to

what you would get with with a with an OZempec or the like and this is this is to I think some of our points we are in early days there's winners and losers are going to be determined certainly we know who has drugs in market now we know who's coming, but a company like him's entering this space shows that there's a lot more to come. Yeah, it's, this is a very good example where all of a sudden, I know what you call biosimilars or what do you, what would you call them, where you're creating, you're mixing matching drugs, essentially. Correct. And all of a sudden, look, the stock's up 30%. And this is not a stock we cover that much. It doesn't show up on our weekly list that often,

but look at it up 30% today. I want to move on and ask you about something else you, you're going to be launching soon. You had a big hit last year with the Magnificent 7 ETF. You all remember this folks? We had them on a while ago last year. Mags, MAGS. It's concentrated magnificent 7 stocks. It was a big hit last year. It's had a new high today. And now you're going to do another one. You announced that you filed for essentially the same thing in China. This is going to be called the Round Hill Lucky 8 ETFs, obviously Chinese reference here, but it's got 10 cent in it, Alibaba, Maytwan, BYD,

Xiaomi, PDD, JD.com, and Baidu. So it's eight China companies, right? And here you see the list. Why is this, why a concentrated bet on China? You hit gold with the Mags thing, but why China now? What made, I'm curious about this decision. Yeah, look, there's a lot of question marks about the Chinese economy and the potential for growth

of the consumer in China. But at the end of the day, we believe that investors are looking for exposures that give them precision. Just like we found with Mags, I remember when we launched Mags, people were questioning, is the Magnificent Seven Trade legit? Is it over? Does it make any sense? Obviously, we're hitting all-time highs a little over a year later,

so certainly it's paid off. Navitya is reporting this week as well. We'll see where that leads. But when it comes to China, when we were hearing feedback from investors, hey, where can we take this construct? this concept of creating concentrated precision and bring it. People give you all sort of wonky ideas, but when we went back to our laboratory, realize China is that opportunity, particularly if they're coming out of an economic slowdown,

that could be an opportunity for investors to step into China and do so in just really the names that matter. There's a lot of ETFs out there, and diversification is great. I firmly believe in broad-based diversification for big parts of our portfolio, but if you just want those names, it's hard to get with some traditional Chinese ETFs. This is going to do that. Yeah, well, it's hard to get, you don't have, they don't have the concentration. There's a lot of Chinese ETS, but you don't have the concentration there. You hit gold with the mags one.

The timing was perfect. And now it's back again. I mean, they had underperformed for a number of months. And in the last few weeks, Magnificent seven stocks have done a great job. And Todd, this is the kind of odd thing about these, I call them Kathy Woodbets, where you're getting concentrated bets in very, very small areas of the market. And sometimes everything just goes against. you and sometimes it just kind of works. China stocks have been making a comeback recently

against all odds, even though the economy is still feeling the effects, the after effects of the whole COVID epidemic. But this speaks to the whole strength of this business or this ETF business that you can launch these things and make an argument about why they might work. Yeah, very much so. And you're right. We've seen demand for Chinese focused ETFs pick up. The crane shares K-Web ETF, which is focused on the internet companies within China, which are fast-growing companies. We've seen growing interest on our VETify platform for the K-Web ETF, the broader-based China ETFs, whether it's China A-shares related from DWS, the X-Trackers firm, the Asher ETF ASHR. We've seen renewed interest in that. And even the more

broadly diversified emerging markets, ETFs that have China within their overall exposure. We are seeing renewed interest. And so I'm excited to see this product from Roundhill come to market. They're very innovative. On a similar note, you also, generative AI, of course, big topics still.

You were very early in with the generative AI ETF, chat, CHAT. If we could put that up and you had right mix it. You had Nvidia, Microsoft, alphabet, your top holdings. Kind of looks like the Magnificent Seven in a way. A little bit. But that's been doing very well.

We're just shy of a new high on that one. And there's the largest holdings. Again, right moves there on NVIDIA and Microsoft, an alphabet with the holdings there. I can't help but be amazed. You know, people ask me about chat GPT and do I use chat GPT and what do I think of? And my thoughts are that it's an interesting product.

From a journalist's point of view, it can be useful, but it's also staggeringly stupid and can make amazingly dumb comments and mistakes. You have to be very careful as a journalist using it. But I can see the next few years what's coming. And so for me, it is quite remarkable that we may be less than five years away from non-biological intelligence coming. I mean, this thing is going to get better every single second. And eventually there's going to be a real breakthrough where it's not just going to be scraping and making, up stuff and assembling pieces, it's going to be doing independent thinking. You can just see it coming.

It's getting better and better. And the year I've been using it, it's getting better. Any thoughts on where we're going on this? I'm asking you to be a big thinker and not an ETF manager, but. Yeah, well, I mean, and that's one of the reasons why we launched a chat ETF to begin with. And even last week's announcement from Open AI, and I'm not sure if you had the opportunity to use those enhancements, they're remarkable. The ability not just to use it as when we think a chatbot or the asking it a question

or typing something in, taking video, taking picture, transforming it, transcribing it, it's all happening. And then not just showing what it says or what it looks like in a picture, giving insights from that. Now, yep, time will tell, right? It's got to get a little bit smarter there. But the more people that use it, the more data that goes into it, the smarter it will get.

And yeah, I think bigger picture, at least in the time, I have three little girls at home. I can only imagine what they're going to be using when they're in high school or frankly when they're working. And I think a lot of it's going to be how do you interact with the science and with with the artificial intelligence. Yeah, well, Todd, this is what I tell people all the time. People who look at this are very fond of saying, ah, look, how stupid this thing is. It gave this made-up answer where it used outdated information and it, you know, hallucinated. And these things are dumb and they're never going to surpass human intelligence.

And, you know, when I point out every single moment, every second, this is getting better, every moment. And you can see the change in just the last year. You don't need to hallucinate yourself, humans hallucinate too, to understand that this thing is eventually going to show some lines, some level of human level intelligence. And it's not that far off. I don't know how you feel about it, Todd, but it's, I tell people to stop smirking and start seeing what,

use a little imagination to see where this is going to be in the next five years. Yeah, this thematic trend has tremendous potential, and this is a great example of there are some ETF providers that launch products two, three, four years ago in anticipation that the trend would pick up, and we've seen strong demand for these ETFs. So the Robo Global Artificial Intelligence ETF, the ticker is THNQ, is one of those examples of ETFs, but we've seen I shares with IRBO, with robotics and artificial intelligence and Global X's BOTZ. We've seen these products continue to gain traction, taking a broadly diversified approach to investing in artificial intelligence.

And we think the trend is still very bright. We were talking about weight loss earlier. This is three or four years further ahead in terms of the ETF product development and the trends within the industry. And we think the future remains very bright for artificial intelligence ETFs. Yeah. Todd, I want to switch gears a little bit. and ask you about an upcoming event that might affect the ETF.

So on May 28th, next week, the SEC will require trades to settle one day after a trade is made. And those who don't know this, folks, this is called T plus one. And this is a change from the current T plus two settlement date. So if you buy a stock, it settles two days later right now. It's gonna go to settlement one day. Todd, what if any effect is this going to have

on ETF settlement and prices next week? Is it going to pass with no problems? Are there issues? Just give us the 30 second viewpoint on this. Yeah. So I think the first couple of days we're going to see some of the kinks get worked out, hopefully within the system. But the biggest issue to me is U.S. investors buying internationally focused ETF.

So those that own stocks in Europe or certainly in Asia, where the market closes, obviously before the ETF closes on the New York Stock Exchange and NASDAQ or CB. And so there's going to be wider spreads for ETFs tied to emerging markets like EEM or developed international markets like VEA from Vanguard. But I think in the coming days weeks, we'll see this work its way out of the system. So the U.S. is going to go into a long week. Canada, Mexico, we're also going to go to T plus one, I understand next week, right? That's my understanding.

That's right. That's right. So I probably would not be buying or eagerly buying ETFs at the open that are focused on international securities the Tuesday after Labor Day or even the Monday or Tuesday after this gets implemented without expectations that the spreads could be wide. And so you certainly have to be aware of that, certainly buying at the open. And the Russell Reconstitution, those who don't know, folks,

this is a little wonky, but this happens in every June, Russell, of 1,000 rebalances, but they announced the first wave that next, I think, on Friday, right? So I'm just trying to figure out how all this kind of mixes in with the play here to cause any complications. Your point, Todd, is you think U.S.-based ETFs are going to be fine, but some of the international ones. The question is they have different settlement dates, right? Potentially.

Correct. And that could cause them. But this will be a temporary problem, right? I think so. I think the ETF ecosystem has proven itself time and again to as more volume happens, these spreads tighten. We'll see these kings worked out of the system soon. Okay. All right. Just wanted to get that. Folks, has been great discussion here. Again, AI, weight loss drugs, the two hottest topics in the ETF business is all over that. Now it's time to round out the conversation with some analysis and perspective to help you better understand the ETFs. This is the Market 102 portion of the podcast.

Todd Rosenblum from Vetify continues with us now. Todd, we've talked about weight loss, ETF's coming. We've talked about the artificial intelligence ETFs. We've talked about T-plus-1 starting next week. I'm wondering what you're thinking of all of these ETF celebrities moving around recently. This seems to be a real sign that the business is maturing. So Brian Lake, who helped push J.P. Morgan's ETF. ITF business into the stratosphere with the JEPP funds, moved to Goldman Sachs as a partner there.

Vanguard, the leader in ETFs brought in a new CEO, a former BlackRock executive, Salim Ramji just recently. And even today, we see Grayskill Investments, the biggest crypto asset manager in the world, replacing their CEO, Michael Sonenschine, with a new CEO from Goldman Sachs, Peter Minstberg. I don't know if there's a trend. here if there's something in the water supply? What is this telling you? There's suddenly a lot of movement. I think there is certainly a trend here. This is a rapidly growing, but you're right, maturing industry. Some firms will want to bring a new focus and bring a new executive in to help them lead that charge. I think that's certainly the case with Goldman Sachs, bringing in Brian

Lake, who proved that he could build an ETF business, a successful one within a large financial services company, and I think he can do that at Goldman Sachs. What's interesting you mentioned about Sileem Ranji is that he came over or was coming over from Black Rock. He'll start soon with Vanguard. Vanguard has historically stayed within the family and promoted people, so they're obviously going outside, but hopefully he's going to stick to what they do, which is low cost, broad asset allocation products, probably bring in a bit more active management. And you mentioned the grayscale change. Yeah, Grayscale is the reason we have spot Bitcoin ETFs from a number of firms, including BlackRock and Fidelity in addition to Grayscale. They sued the SEC. They won.

They helped to develop this overall industry, but they're losing market share. These newer entrance into the marketplace have had some more success in Grayscale. So hopefully a new leader can get things moving forward again because Grayscale's got a lot of expertise to tap into. I think Salim Ramji, of the three that I mentioned, Salim Ramji being brought into Vanguard is the most significant because as you mentioned, Vanguard, this is the first person that's not a prodigy or a protege, I should say, of Jack Bogle, the founder of Vanguard to come in.

This was a competitor, essentially. Ramji was very big at BlackRock and the ETS business there. And so I can't help but wonder why they would do that. And it certainly seems like maybe they're trying to figure out ways of thinking outside the box a little and bringing in somebody that's not such an insider. That seems like the logical answer to me. Yeah, agreed. And I think we're going to see an evolution with Vanguard. I don't think it's going to be a revolution. So we'll still continue to see a lot of the same things that they've done.

And they've been stepping into active ETFs recently. They launched a couple of fixed income ETFs at the end of 2023 that have had success. I think, going to see more i think they'll be able to tap into more of the retirement opportunities within the etf marketplace but i don't expect them you know uh romghi at black rock helped to support the bitcoin etf that i was referring to i don't expect that to happen from vanguard i don't expect vanguard to launch thematic ets like we've been talking about during today uh focus on robotics or a i or uh health care trends that we've touched on i think vanguard is going to be vanguard just with a slightly different perspective with a new outsider coming in.

Yeah, I agree. Okay, I'm going to leave it there, Todd. Appreciate it and talk to you soon. That does it, everybody, for this week's ETF Edge, the podcast. Thanks for listening. Join us again next week. And remember, you can check out all of our shows, etfedge.cmbc.com. InvescoQQQQQ believes new innovations create new opportunities.

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