'Continued innovation' is key when investing in weight loss trend

GLP-1 weight-loss drugs' popularity has paved the way for broadening use cases for people seeking a healthier lifestyle; the Food and Drug Administration (FDA) approved Novo Nordisk's (NVO) Wegouvy to use in treating and decreasing overweight patients' elevated cardiac risks.

Tema ETFs Chief Investment Officer Yuri Khodjamirian highlights the pharmaceutical trend's ability to mainstream weight-loss treatments and ways to invest in the healthcare space. Khodjamirian's firm manages its own Tema Cardiovascular and Metabolic ETF (HRTS)

"It is extremely important that you're selective. The first thing, you need to have a precise exposure of the theme. you want to make sure the companies that are under the hood in the ETFs are the companies that are going to be winning the way forward in terms of forward-looking winners rather than backward-looking winners," Khodjamirian says. "A lot of times you see in ETFs you have the historic winners rather than future ones."

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Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

RACHELLE AKUFFO: According to S&P Global Market Research, investor risk appetite appears to be improving in February as markets digest better growth prospects in the US economy and easing recession risks. Now, leading the way are health care and tech sectors. The latest innovations in obesity drugs with Novo Nordisk and Eli Lilly's GLP-1s fueling the health care sector rally so far this year. So what are the best ways to invest in health care and weight loss-related stocks using ETFs?

Well, as part of our ETF Report, brought to you by Invesco QQQ, let's bring in our next guest, Yuri Khodjamirian, Tema ETFs Chief Investment Officer, to discuss more. Thank you for joining us this morning. So I want to first start with the latest here, which was the FDA's approval of Novo Nordisk's Wegovy to treat heart disease. So another one of these additional benefits of this weight loss drug that actually was started off as a diabetes drug here. What does this open up then in how people can invest in this space?

YURI KHODJAMIRIAN: Yeah, I mean, look, it's great to see the FDA approve it off the back of essentially data that Novo Nordisk delivered back in the summer and then the full data readout in November, December last year. This was a major trial. They took 17,000 patients, five years. And what they showed was a 20% reduction in the risk of major cardiovascular events. So for the first time, we're starting to see real evidence that weight loss drugs actually benefit patients. And this is going to be a big deal in terms of payers.

So you're going to see Medicare, for example, start to look at covering these drugs, which historically they haven't done before. And similarly, other insurance companies in countries around the world are going to have to sit up and pay attention when you're saving people's lives with these drugs. So it was a bit of a major move. The FDA announcement was expected because the data was so strong. But this is really helpful in terms of getting weight loss drugs over to patients.

AKIKO FUJITA: So, Yuri, for those who are following this weight loss drug trend, how do they invest in it through ETFs?

YURI KHODJAMIRIAN: Yeah, so at Tema, we have an ETF called HRTS. That's the ticker. And it's basically investing in obesity drugs and obesity-related areas, as well as other cardiometabolic areas. This is a fantastic space. There's been a huge expansion in different opportunities and different types of companies. You've got your stalwarts like Novo Nordisk and Eli Lilly, which have been leading the way.

But there's a whole host of new companies that are coming behind with better and newer treatments in terms of weight loss and other parts-- other types of cardiovascular disease and diabetes. So this ETF is a great way to get exposure to the obesity and weight loss trend.

RACHELLE AKUFFO: So, Yuri, what are some of the characteristics that people should be looking for within ETFs here? Because obviously, you can get a flood of companies here trying to jump on these obesity trends as well. What are some of the things that you specifically look for?

YURI KHODJAMIRIAN: Yeah, absolutely. I think it's extremely important that you're selective. The first thing is that you need to have a precise exposure of the theme, right? So you want to make sure that the companies that are under the hood in the ETF are actually the companies that are going to be winning the way forward in terms of forward-looking winners rather than backward-looking winners. A lot of the times, you see in ETFs you have the historic winners rather than the future ones.

The second thing is continued innovation from these companies. And innovation is really the lifeblood of the health care sector. And you want to be seeing that within the companies. As you know, HRTS is actively managed. We have a portfolio manager who spent 25 years in industry. He's an MD PhD. He's got a ton of expertise looking at this space. And he's spending his time looking at who is going to be the next winners in the weight loss revolution and constantly adjusting our portfolio to be-- make sure that we're aligned that way.

AKIKO FUJITA: Finally, you're a broader health care. We have seen huge gains across the board here, just talking about the S&P Global Investment Managers Index also very bullish on health care. That's the top sector there. For those investors who have not gotten in yet, what are the key entry points they should be looking at? Is it too late?

YURI KHODJAMIRIAN: That's a great question. So in terms of life sciences and health care in general, we've actually experienced quite a torrid bear market probably over the last 2 and 1/2 years. And it sort of bottomed at October last year, and we seen a rally in biotech shares. And now what we're seeing is a real green shoots. You're seeing M&A activity pick up. You're seeing IPOs being done. You're seeing even secondary private placements of stock. All of these are healthy signs that the market is healing in terms of biotechnology and health care sectors.

And so, yes, we've had a rally. But we're pretty much back to where we were relative to the levels of last summer. And so what that means is, we think that there's quite a lot more to go. Maybe there'll be a space for consolidation. But if you look at areas like weight loss and obesity, there's a lot of growth. I mean, these are huge, huge markets. You know, Novo Nordisk estimates there's 800 million people living with obesity today. By some estimates, it's actually a billion, if you include children and adolescents.

And that number, the World Obesity Outlook Forecast, is going to grow to 1.6 billion by 2030. And only about 2-- 1% to 2% of those are actually on any type of medication. So you can see that there's enormous potential. And it's that growth that's underlying why we think that there's a lot more potential going forward in this space. And if you couple that with innovation, which is constantly happening and has been happening despite the bear market, we think health care and life sciences particularly are an exciting place to be.

AKIKO FUJITA: Yeah, that's a lot of billions you put there in terms of potential.

YURI KHODJAMIRIAN: Yeah. Yuri Khodjamirian, Tema ETFs Chief Investment Officer, good to talk to you today. I appreciate the time.

YURI KHODJAMIRIAN: Thanks for the time.