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New GERM ETF Launched to Tap the Growing Biotech Sector

Sweta Killa
·4 min read

In order to capitalize on the emerging trend for the need of vaccines or treatments against the infectious disease in the biotech sector, ETF Managers Group launched ETFMG Treatments Testing and Advancements ETF GERM last week.

GERM in Focus

The new fund seeks to offer exposure to biotech companies engaged in research and development, testing, and development of therapeutics and vaccines. It looks to track the Prime Treatments, Testing and Advancements Index, which includes companies engaged in developing treatments and vaccines, or diagnostic technology, in the fight against infectious diseases.

The prime focus of the fund is on the advancements in the infectious disease subsector of biotech with targeted exposure to U.S.-listed companies at the forefront of R&D, vaccines, therapies, and testing technologies. About 68.4% of the portfolio is tilted toward treatments while the remainder goes to testing (read: 5 ETFs That Outshined During 100 Days of Coronavirus Pandemic).

Currently, GERM holds 56 securities in its basket with each security accounting for no more than 6.4% of assets. Alnylam Pharmaceuticals ALNY, Moderna MRNA and Bio Rad Laboratories BIO are the top three holdings. The new ETF comes with an expense ratio of 0.68%.

How does it fit in today’s portfolio?

The ETF could be an intriguing choice for investors seeking to gain exposure to a previously underrepresented growth sector within biotech. The global vaccines market is one of the fastest-growing biotech segments. Per the new reports, the value of the global human vaccines market is expected to reach $72.5 billion by 2024, representing a CAGR of 11.2% from 2016 to 2024.

There were 38 epidemic events in the U.S. alone from January 2011 to January 2018 and over 20 combined pandemics and epidemics affecting the world today (read: Coronavirus Infections Resurge: Tech ETFs to Thrive).

The debut of the new fund came at a right time when biotech stocks are soaring on hopes of vaccines or treatments to fight the novel coronavirus disease. GERM offers a unique approach that embraces cutting-edge technologies through cooperation among big/small pharma and biotech that can nimbly leverage discoveries and translate them into commercialized and impactful assets.

ETF Competition

Though the new product doesn’t have a direct contender providing exposure to such a theme, the planned Pacer BioThreat ETF (VIRS) could pose some threat. This ETF looks to follow the BioShares BioThreat Index, which is composed of U.S.-listed companies that search for diagnostic, pharmaceutical, behavioral and other tools to protect and help people recover from current and emerging threats, including diseases caused by viruses and chemical warfare agents (read: First-Mover Pandemic Disease Fight ETF On The Way).

Other biotech ETFs like ARK Genomic Revolution Multi-Sector ETF ARKG, Invesco Dynamic Biotechnology & Genome ETF PBE and ALPS Medical Breakthroughs ETF SBIO could pose threats to the new ETF. ARKG has accumulated $1.1 billion in AUM and charges 75 bps in annual fees. It is an actively managed ETF, focusing on companies likely to benefit from extending and enhancing the quality of human and other life by incorporating technological and scientific developments plus improvements and advancements in genomics into their business.

PBE offers exposure to companies that are principally engaged in the research, development, manufacture, and marketing and distribution of various biotechnological products, services and processes and companies that benefit significantly from scientific and technological advances in biotechnology and genetic engineering and research. The fund has AUM of $236.8 million and charges 57 bps in annual fees. SBIO, having AUM of $196.5 million and expense ratio of 0.50%, provides exposure to companies with one or more drugs in Phase II or Phase III FDA clinical trials.

Bottom Line

Given that GERM invests in the hottest emerging biotechnology trends, it will not be much difficult for the product to see big inflows and solid investor interest as long as it generates decent total returns net of expense ratio.  

Further, the new product would get the first-mover advantage, as it is the first ETF targeting vaccines and treatments for the infectious disease in the biotech space.

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Moderna, Inc. (MRNA) : Free Stock Analysis Report
Alnylam Pharmaceuticals, Inc. (ALNY) : Free Stock Analysis Report
BioRad Laboratories, Inc. (BIO) : Free Stock Analysis Report
ALPS Medical Breakthroughs ETF (SBIO): ETF Research Reports
Invesco Dynamic Biotechnology Genome ETF (PBE): ETF Research Reports
ARK Genomic Revolution ETF (ARKG): ETF Research Reports
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