The novel coronavirus is easily this year’s most impactful theme and where there’s a compelling a theme, there’s often an exchange-traded fund to be found. The recently launched ETFMG Treatments, Testing and Advancements ETF (NYSEARCA:GERM) isn’t a dedicated Covid-19 fund, but the GERM ETF is fairly close, making it the first of its kind.
The GERM ETF is less than a month old, but at this point, it’s fair to add the fund to the list of new ETFs are coming to market with well-timed themes. An asset haul of $10.57 million (as of June 24) in just five days of trading confirms as much. That’s good work for a narrowly focused fund from a small issuer. GERM charges 0.68% per year, or $68 on a $10,000 investment.
GERM follows the Prime Treatments, Testing and Advancements Index, which “is designed to include the securities of companies engaged in performing research, development and commercialization of treatments, vaccines or biological testing for infectious diseases,” according to ETFMG.
Unfortunately for humanity and fortunately for investors, “vaccines” is a 2020 buzzword. And, while not all of GERM’s 56 holdings are directly involved in the Covid-19 vaccine competition, enough are to make the rookie fund highly relevant in the current market environment.
Familiar Names, Compelling Roster
When it comes to coronavirus vaccine contenders, Moderna (NASDAQ:MRNA) and Gilead Sciences (NASDAQ:GILD) are among the leaders. While Gilead isn’t on the GERM roster, the new fund allocates 5.71% of its weight to Moderna. That allocation makes Moderna one of the largest weights to that stock among all ETFs.
Inovio Pharmaceuticals (NASDAQ:INO) is also a GERM top-10 holding. This is relevant because that company is a small though credible Covid-19 vaccine contender. Inovio is credible enough that it has a deal with the Pentagon for needle-less vaccine delivery. Novavax (NASDAQ:NVAX), a stock that’s surged more than 1,000% year-to-date, is in on the action, too, with Phase 1 trial results for its NVX-CoV2373 vaccine expected out in July. Novavax and Inovio combine for 10.62% of the GERM ETF’s roster.
Further down the GERM lineup are some smaller, more speculative vaccine plays that are engaged in the coronavirus fight. New or not, GERM’s leverage to coronavirus vaccines is exceptional relative to legacy healthcare and biotechnology ETFs, but that’s not the only chapter in the fund’s book.
Investors must account for the coronavirus vaccine timeline, which is 12 months to 18 months out. In the meantime, testing remains pivotal. This is highlighted by the recent spate of new Covid-19 cases in states such as Arizona, California, Florida and Texas. GERM covers that base as 31.6% of its holdings are classified as diagnostics and testing companies.
Bottom Line on the GERM ETF
It’s easy to be seduced by a company’s coronavirus treatment or vaccine exposure, but, at some point, this scenario is going to improve. Treatments will become available to beat the Covid-19 virus.
That doesn’t mean the GERM thesis is limited. It’s not. Just this century, , to name a few examples, there’s been the severe acute respiratory syndrome (SARS) and the Middle East respiratory syndrome (MERS) pandemics. Plus, there was the Zika virus outbreak.
Think the coronavirus pandemic is the only one the world is currently tussling with? Think again. According to ETFMG, the world is currently contending with 20 epidemics or pandemics. The U.S. dealt with 36 epidemic events from January 2011 through January 2018.
That means there will always be a need for vaccines. And, growth expectations reflect that need as the global vaccine market could be worth $72.5 billion by 2024.
So while the GERM ETF will have near- to medium-term ties to the coronavirus, the new fund offers long-term appeal for growth investors.
Todd Shriber has been an InvestorPlace contributor since 2014.