Thematic Funds are a great way to gain exposure to a particular industry segment without having to worry about selecting individual stocks that may or may not end up fulfilling their potential. The whole point of an ETF is to give investors broad dynamic exposure as the funds mature and evolve.
This week’s theme in the spotlight is Obesity. As you will see, the two ETFs profiled tackle the theme from opposing angles.
Solactive Obesity Index
When you first hear of the Solactive Obesity index (SLIMID Index), you could be forgiven for thinking it would be comprised of fast food and snack companies like McDonald’s Corp (NYSE: MCD) and PepsiCo, Inc (NASDAQ: PEP).
Instead, the Fund is comprised of companies that generate their revenue from treating or alleviating the ailments caused by Obesity. Companies in the index include those developing biotechnology, pharmaceuticals, weight loss, and plus-sized clothing. The Fund holds an interest in 46 different entities as of writing. NOVO NORDISK A/S (CPH: NOVO-B), Herbalife Nutrition Ltd (NYSE: HLF) and Fisher & Paykel Healthcare Corp Ltd (NZX: FPH), are some examples of the largest holdings in the Fund.
In my opinion, betting against the Obesity Fund would be foolish (presuming that the right companies were selected for the Obesity Fund). A growing percentage of the global population is being classified as overweight or obese every year. There is no sign that activities designed to mitigate this problem are having an impact. Consequently, the companies creating the therapies to relieve the associated disease will be there to clean up the mess and justifiably line their pockets.
Since its inception, 31 January 2011, the Solactive Obesity Index has returned 377%. This total growth corresponds with an annualized return of more than 16% for the past ten years.
Invesco Dynamic Leisure and Entertainment ETF
If you were after a Fund that is comprised of companies making the Obesity epidemic worse, then the market has you covered.
Invesco Dynamic Leisure and Entertainment ETF (NYSEARCA: PEJ) offers exposure to the biggest junk food makers in the US, and entertainment companies where bums in seats are the goal.
The Fund’s most significant holding are each between 5% and 6% of total holdings. Yum! Brands Inc (NYSE: YUM), Starbucks Corporation (NASDAQ: SBUX), ViacomCBS Inc (NASDAQ: VIAC), and the Walt Disney Co (NYSE: DIS) are all included in this category.
The Fund has returned 167.92% (or 10.36% annually) since 2011. However, it has trailed the comparable S&P 500 Hotels Rests & Leisure, which has returned 14.81% per annum, indicating that the fund managers have made some poor selections in this time.
Even so, some of the Funds largest holdings may have given the Fund a considerable boost in 2021. AMC Entertainment Holdings Inc (NYSE: AMC) and World Wrestling Entertainment Inc (NYSE: WWE) benefited from the ‘meme’ mania inflating the price of many US stocks. The latter, which the Fund partially divested as it began to peak. The former, AMC Entertainment, still comprises 2.94% of the Fund’s total investment, totalling 808,460 shares. Those 808,460 AMC shares are up by 492% in the past six months and 1,565% in YTD.
