In the ever-evolving world of exchange-traded funds (ETFs), Tema Global stands out for its innovation and thematic focus, particularly in the biotechnology and healthcare sectors. With its commitment to uncovering transformative growth areas, Tema takes a unique investment approach that actively targets emerging, high-impact trends.
Tema’s GLP–1, Obesity & Cardiometabolic ETF (ticker: HRTS) reflects this strategy by addressing the expansive healthcare needs arising from increasing obesity rates and related health conditions. Yuri Khodjamirian, CIO of Tema ETFs, spoke with The Wealth Advisor’s Scott Martin to discuss the innovation driving Tema’s healthcare and biotech strategies, especially through HRTS.
Healthcare and Biotech in an Uncertain Market
In a U.S. election year, many advisors and investors may be wary of how such a binary event might impact market stability. However, Khodjamirian emphasizes that “elections are always uncertain, and markets aren’t always friendly to uncertainty,” adding that post-election market performance remains relatively unaffected by which party is in power, with few exceptions. For the healthcare sector, this means focusing on long-term growth rather than reacting to political shifts.
Tema’s approach considers this election-proof philosophy, focusing on economic and societal megatrends that transcend political divides. Healthcare, for example, remains an essential investment theme supported by both parties, particularly around such issues as reducing drug prices and expanding healthcare access. The Inflation Reduction Act, which brought drug pricing negotiations for Medicare, exemplifies bipartisan support for healthcare reform. “We think that from here you could see markets establish a plateau and move up from there in terms of the healthcare sector,” Khodjamirian shares. This creates a favorable environment for investing in healthcare ETFs such as HRTS, where the long-term trend is clear, and the structural need for healthcare solutions continues to expand.
An Active Approach in a High-Risk Sector
Unlike passive index funds, which can struggle in a sector as volatile as biotechnology, HRTS is actively managed. This approach is crucial when investing in the biotech space, where success rates are low, and “most companies will have that one single asset, and then they fail,” Khodjamirian explains. With HRTS, Tema selectively curates a portfolio of companies it believes have a favorable risk-to-reward profile, balancing exposure to promising drug developments with the need to mitigate the downside risks.
For advisors, this active strategy is particularly valuable given the high failure rates in biotech. “Even a phase one trial just entering the clinic to make it to approval is about 10%,” Khodjamirian shares, emphasizing that the biotech landscape is littered with companies whose valuations plummet if their lead drugs fail in trials. “You want to avoid those and build a portfolio where you have some asymmetric risk-reward bets that we think will produce a positive outcome for investors.” The disciplined, research-driven approach of HRTS, supported by Tema’s scientific advisory board, aims to capture upside potential while minimizing exposure to the inherent risks in a high-stakes sector.
HRTS: Capitalizing on the Cardiometabolic Revolution
At the core of Tema’s strategy is its cardiometabolic-focused fund, HRTS, which targets investments in biotechnology and healthcare companies addressing obesity, diabetes, and cardiovascular diseases. This is a particularly dynamic area with transformative drugs aimed at metabolic disorders—conditions that impact nearly half of the U.S. population. About 43% of the U.S. population is obese, according to the National Library of Medicine, Khodjamirian points out, noting that the cardiometabolic crisis has wide-reaching consequences for healthcare costs, with obesity alone linked to around 200 diseases.
The science behind the drugs in the HRTS portfolio holds significant promise for more than just weight loss. For instance, GLP–1 receptor agonists—a category that includes well-known drugs from companies such as Novo Nordisk—show potential beyond obesity. Khodjamirian highlights the wide-ranging benefits of these treatments, stating they “have been proven now in clinical trials from cardiovascular disease, liver disease, sleep apnea, [to] kidney disease, all of these associated obesity illnesses.” While these applications are still under clinical investigation, they underscore the significant potential for addressing multiple health issues tied to obesity.
Tema leverages its scientific advisory board and in-house expertise to guide investment decisions. “HRTS is managed by Dr. David Song, who’s got 25 years of industry experience,” Khodjamirian explains. “He brings a deep understanding of the space from both a scientific and investment perspective, ensuring that the fund stays focused on companies with high growth potential in this specialized field.”
Long-Term Potential of the Metabolic Drug Market
The cardiometabolic drug market is positioned for exponential growth, with projections suggesting that it could reach $70 billion by 2032, according to PharmiWeb. Khodjamirian explains that the transformative potential of these drugs, especially as they become more accessible, mirrors the growth trajectory of statins in the 1990s. “Statins started out with clear benefits, and now the penetration rate of statins is about 40-50% in the United States.” GLP–1 drugs, with their broad applications, could potentially see a similar adoption rate, reaching hundreds of millions globally.
By addressing root causes such as obesity, GLP–1 drugs could also alleviate many of the associated chronic diseases, from diabetes to cardiovascular issues. While costs remain a concern, Khodjamirian emphasizes that increased competition and manufacturing advancements will ultimately make these drugs more affordable, further expanding the market. “This could be the largest pharmaceutical market in the world,” he notes, with a potential global market valued in the six-figure billions when accounting for both U.S. and international sales.
Expanding Growth Allocation Beyond Technology
For financial advisors, HRTS offers an attractive alternative to traditional growth sectors such as technology, which have dominated portfolios in recent years. While big tech remains a solid core allocation, Khodjamirian points out that the sector has become highly concentrated, noting that this concentration exposes portfolios to volatility during downturns in tech.
“Things can get a bit hairy sometimes, and the market is quite correlated when everyone’s in the same things,” he says. “What they want to do is diversify that, but not sacrifice the growth” they’ve experienced in tech. High-growth areas such as the obesity and weight-loss drug sectors offer this balance, creating exposure to “megatrends where the growth rates rival those in tech,” providing an alternative path to diversification without compromising growth—making HRTS an appealing addition to the growth allocation of a well-rounded portfolio.
Tema’s Commitment to Advisors: Expertise and Innovation
Tema’s thematic approach is designed to provide financial advisors with an expert-guided investment option that aligns with emerging trends in healthcare and biotech. Through funds such as HRTS, Tema combines scientific insights with active management to capitalize on the cardiometabolic trend. “We’ve got a scientific board as well, including the man who discovered GLP–1, and a team behind David researching these stocks,” Khodjamirian shares, highlighting Tema’s commitment to expertise-driven investment strategies.
Advisors seeking alternatives to traditional tech-heavy growth allocations can look to HRTS as a way to participate in the long-term growth potential of the healthcare sector. With high demand for innovative cardiometabolic treatments, and a scientifically-backed portfolio, HRTS is positioned as a core growth investment rather than a speculative satellite option. “These funds are not novelty, thematic investments; they’re part of the core of your growth allocation,” Khodjamirian emphasizes, making a case for HRTS as a cornerstone in a diversified portfolio.
As Tema continues to pioneer new ways to access growth within essential sectors such as healthcare, advisors have a powerful tool in HRTS. With an active approach to cardiometabolic investing, supported by industry-leading expertise, Tema enables advisors to offer clients both diversified growth and meaningful exposure to one of the most promising areas of healthcare.
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Additional Resources
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Disclosures
Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Fund’s prospectus or summary prospectus, which may be obtained by visiting www.temaetfs.com. Read the prospectus carefully before investing.
Important Risks: On 07/01/2024 the Tema Obesity & Cardiometabolic ETF was renamed Tema GLP-1, Obesity & Cardiometabolic ETF. Diversification does not ensure profits or prevent losses. Investing involves risk including possible loss of principal. There is no guarantee the adviser’s investment strategy will be successful. Industry Concentration Risk: Because the Fund's assets will be concentrated in an industry or group of industries, the Fund is subject to loss due to adverse occurrences that may affect that industry or group of industries.
Biotechnology Industry Risk: The biotechnology industry can be significantly affected by patent considerations, including the termination of patent protections for products, intense competition both domestically and internationally, rapid technological change and obsolescence, government regulation and expensive insurance costs due to the risk of product liability lawsuits. In addition, the biotechnology industry is an emerging growth industry, and therefore biotechnology companies may be thinly capitalized and more volatile than companies with greater capitalizations.
Sector Focus Risk: Obesity and Cardiology companies are highly dependent on the development, procurement and marketing of drugs and the protection and exploitation of intellectual property rights. A company’s valuation can also be greatly affected if one of its products is proven or alleged to be unsafe, ineffective or unprofitable. The stock prices of Obesity and Cardiology companies have been and will likely continue to be very volatile. The costs associated with developing new drugs can be significant, and the results are unpredictable. Newly developed drugs may be susceptible to product obsolescence due to intense competition from new products and less costly generic products. Moreover, the process for obtaining regulatory approval by the U.S. Food and Drug Administration or other governmental regulatory authorities is long and costly and there can be no assurance that the necessary approvals will be obtained or maintained. Companies in the medical equipment industry group may be affected by the expiration of patents, litigation based on product liability, industry competition, product obsolescence and regulatory approvals, among other factors. Investing in foreign and emerging markets involves risks relating to political, economic, or regulatory conditions not associated with investments in U.S. securities and instruments. In addition, the fund is exposed to currency risk.
Adviser: Tema Global Limited.
Sub-Advisor: NEOS Investments, LLC.
Distributor: Foreside Fund Services, LLC.
For inquiries: info@temaetfs.com
