Why investors are turning to COVID-19 themed ETFs

ETF Managers Group launched its biotech ETF GERM. ETF Managers Group CEO Sam Masucci joins the On the Move panel to discuss.

Video Transcript

ADAM SHAPIRO: We're all talking a lot about the race to develop a vaccine and treatments for COVID-19. There's a way that investors can actually take-- well, for lack of a better term, play this situation. One of the ways to do that is an ETF called GERM. Now, to talk more about GERM and other ETFs, we will come into the stream Sam Masucci. He is the founder and CEO of ETF Managers. Good to have you here, sir.

SAM MASUCCI: Thank you for having me.

ADAM SHAPIRO: Tell me about GERM. What specifically makes up GERM, and why would it be interesting to an investor?

SAM MASUCCI: Sure. So GERM, which is the ticker-- the official name is the ETF Managers Treatments, Testing, and Advancements ETF-- is a thematic ETF that provides a portfolio investments of all the companies that are really at the forefront and will benefit from an investment level in either the areas of treatments, testing, advancements. And we've broken the portfolio really into those three categories. So we have a group of companies that are working on vaccines as well as treatments and testing.

JULIE HYMAN: Hey, Sam, it's Julie here. I was looking at some of the other biotech ETFs that are out there because, this is not the only one. There are about 16, according to ETF.com. They've got about $19.5 billion in assets, give or take, collectively. The biggest one-- you guys are kind of an upstart here-- the biggest one is IBB, which has about $9.5 billion in assets. What makes you is different than the others? Because, as I say, there are a good number of them. And how are you sort of differentiating yourselves and letting investors know about that?

SAM MASUCCI: Sure. That's a great question. We start with differentiating ourselves as a firm. The firm is focused on very concentrated pure investments in multiple themes. And we've raised a little over $4 billion doing that. You can look at a number of the biotech, biopharma ETFs that've been out for much longer than GERM, but what you'll find is that they are a deluded exposure to those companies that are directly involved in vaccines, treatments, and testings for pandemics, and in particular, those that are at the forefront of working on COVID-19.

What we have found from our investors, and we have several thousand already in GERM at $70 million under management, is that they were looking for a plug and play portfolio solution to give them that kind of direct access. And I think that's best illustrated in one example by even Robinhood. There were over 4,500 accounts that owned GERM, which I think is quite unique. And if that's more millennial-focused, and we believe that it is, the millennial investors are doing their homework, and they're deciding that they really do want this concentrated exposure to a fund like GERM.

JULIE HYMAN: So, Sam, and I know you're not a biotech expert, per se, you're an ETF manager, but I do have a question that has been on my mind about these biotech stocks, particularly those that are trying to develop vaccines, like a Novavax, for example, which is in the ETF.

SAM MASUCCI: Yes.

JULIE HYMAN: The stock gains when we get vaccine news-- and it's predicated on them coming up with a successful vaccine-- to my mind, there are two issues. One, their vaccine might not work. But two, even if it does work, what we have heard from the vaccine makers is that these vaccines are not necessarily going to be profitable. At best, they'll break even, because it's not like they can sell them for a lot, because we are in a health crisis. So why the allure, then, of many of these stocks?

SAM MASUCCI: Sure. There are a few questions in that. So what I would say when you look at companies like Moderna, Novavax, they are clearly at the forefront of trying to develop vaccines. And there's clearly-- there's a global health problem. And so it's certainly going to benefit the company if they are one of those that helps find this-- this vaccine.

As far as from a pricing standpoint, whether they're going to make money, when it will be profitable, I think that we don't have an example before with such a global collaboration, if you will, and embrace of trying to get behind all of these companies. There are talks of things like IP pooling, which I know the US still has not signed on for. So I think ultimately, one, we will have a vaccine. Two, the companies that develop that vaccine will benefit from it. And it will be a positive for the stock's price and its earnings.

It's nice to see that we are hopefully going to have this vaccine in short order, and it will be affordable to everyone that needs it.

ADAM SHAPIRO: Sam, I want to pick up on something you said a minute ago, which is about these investors-- these millennials doing their due diligence. I realize some people go into ETFs for the liquidity of an ETF as well as the protection. But if they were doing their due diligence, wouldn't they be better off buying the specific companies that make up this ETF?

SAM MASUCCI: That's a good question. You know, our funds-- most of our funds, GERM included, are index-based. Those indexes are rebalanced once a quarter. And there are 56 components in that index. I think it'd be difficult for the average investor to do the level of diligence that we and our index provider are doing. And what I would add is that while investors historically have been very good at picking important investment themes, they're generally very poor stock pickers. And they also generally concentrate all of that into the single stock risk.

By having a broad portfolio but focused on this important theme, I think reduces the risk by giving them 56, if you will, opportunities rather than trying to pick the one that's going to most benefit them.

ADAM SHAPIRO: And on that note, we say, thank you very much. We can all get in on this if it's something we do want to do, as opposed to having to spend the hours of doing the due diligence. That's one of the benefits of an ETF. Sam Masucci, ETF Managers group founder and CEO, all the best to you.