In June alone, three exchange traded funds framed as various spins on pandemic investing debuted with the Pacer BioThreat Strategy ETF (CBOE:VIRS) among that trio. Appropriately tickered, the VIRS ETF debuted on June 24, just two months after the issuer filed plans for the fund.
VIRS follows the LifeSci BioThreat Strategy Index and charges 0.70% per year, or $70 on a $10,000 investment, making it the most expensive of the ETFs spawned amid the novel coronavirus pandemic.
Let’s discuss the VIRS fee for a moment because the expense ratio is a primary evaluation trait used by investors mulling ETFs. It’s a “get investors in the door” or “keep them at bay” characteristic.
Specific to VIRS’ expense ratio, investors ought to consider a couple of things. First, rarely do narrowly focused, thematic ETFs carry low fees. That’s the cost of admission for homing in on a particular niche. But on the upside, the VIRS ETF should be more levered to developments in the fight to beat the novel coronavirus.
Second, there are scores of pricey ETFs that are “worth it,” meaning a cheap fund isn’t always a good and an expensive isn’t always bad.
VIRS: Meeting in the Middle
In addition to VIRS, the two other ETFs born out of the Covid-19 crisis are the ETFMG Treatments, Testing and Advancements ETF (NYSEARCA:GERM) and the Direxion Work From Home ETF (NYSEARCA:WFH).
The names of the two VIRS rivals are representative of the exposures delivered to investors. GERM is full of companies working on vaccines – some focusing on the coronavirus – and diagnostics and testing firms. WFH is home to a slew of technology and communications services firms addressing concepts such as cloud computing, cybersecurity and remote communications.
Though its name doesn’t imply as much, VIRS splits the difference between its two competitors. The rookie ETF has just 45 holdings, giving it a concentrated lineup, but the mandate of the LifeSci BioThreat Strategy Index is rather broad.
Companies can be included in that index if there’s exposure to the following themes: current and future pandemic research, production of agents used to combat biological warfare, products used to detect biological threats, border protection/homeland security, stockpiling during natural disasters and pandemics, food and water safety enhancements and work from home technology.
In plain English, it’s not every day a coronavirus ETF comes along that allocates more than 19% of is weight to Nvidia (NASDAQ:NVDA), Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX), but that’s exactly what VIRS does.
Bottom Line
While VIRS is pricier than competing funds in this new ETF segment, it offers investors a potentially less risky avenue to fight against Covid-19 investment thesis. Investing directly in vaccine producers or a fund heavy on those name is undoubtedly compelling in the current environment, but there’s an obvious risk: delays, disappointments and other negative headlines pertaining to vaccine development efforts.
Compounding that risk is that many companies in the Covid-19 vaccine fray are small- or mid-cap names. Conversely, VIRS allocates almost half its weight to the health care sector, giving more than adequate leverage to companies engaged in the fight against the virus, but the average market value of the fund’s components is $205.65 billion, as of May 31.
Additionally, VIRS is the most sector-diverse of the new breed of virus ETFs. The new Pacer fund isn’t a dedicated health care ETF, nor is it a tech/communication services product in disguise. VIRS holdings hail from seven sectors – by far the most in this niche.
Beyond its health care and work-from-home exposure, VIRS has shelter-in-place credibility via the aforementioned Netflix allocation and a 13% weight to consumer staples stocks. Those traits enhance VIRS’s status as the most diverse of the Covid-19 ETFs.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.
