For the better part of this year investors have been trying to figure out ways to make money from companies that are benefitting from the pandemic. Technology stocks tied to the remote workforce theme have been popular and performed well. Several consumer products companies have also been clear winners.
But in the health care space, the picture isn't as clear. Purchasing the stock of a company competing to develop a viable COVID-19 vaccine or treatment is a bit of a crapshoot. Who will win the race? Will multiple winners emerge?
In the highly volatile biotechnology industry, the headline risk is already immense. One bad trial can sink a stock. A positive FDA review can send another stock flying.
When it comes to picking coronavirus-related biotech stocks, there are elements of both skill and luck. Investors who are not sure where to allocate their funds may want to consider the newly launched 'GERM' exchange-traded fund.
What is the 'GERM' ETF?
The ETF Managers Group (ETFMG) Treatments, Testing, and Advancement ETF debuted on the NYSE Arca exchange on June 18th. The fund's name is a mouthful and is more easily identified by its ticker symbol GERM.
The 'GERM' ETF offers exposure to a range of biotech and other health care companies that are involved in the testing and treatment of infectious diseases. The fund group has targeted 63 U.S. listed companies that are considered leaders in advancing the world's vaccines, therapies, and testing techniques.
Roughly two-thirds of the ETF is invested in treatment companies with the remaining one-third in diagnostic companies. The funds top holdings include some recognizable names that have been frequent COVID-19 headliners.
Moderna, one of the leaders in the race to develop a coronavirus vaccine, is the top holding. German biotech company BioNTech SE is next. It is partnered with Pfizer on the development of an mRNA vaccine. The duo is slated to have phase 3 results as soon as the end of October. Novavax, which is also in a final stage vaccine trial, is another top GERM holding.
In the testing space, well-known diagnostics companies Laboratory Corp and Quest Diagnostics are among the fund's largest positions.
GERM Fund Also a Play on Future Infectious Disease Outbreaks
The 'GERM' fund is not only a diversified way to spread out your bets among a basket of COVID-19 plays but has potential as a long-term play as well. Why? Although COVID-19 is the most pressing global health care concern, we are unfortunately sure to see more worldwide health threats.
According to the World Health Organization, there are currently 20 pandemics and epidemics impacting the world today. From January 2011 to January 2018, there were 36 epidemic events in the U.S. alone.
And as the world becomes more interconnected through trade and travel, the likelihood of continued disease outbreaks is high. This means that health care companies around the globe will be working on vaccines, treatments, and diagnostics for many years to come—and well beyond the coronavirus.
Transparency Market Research forecasted that the global vaccine market will grow 11% annually from 2016 to 2024 and become a $72.5 billion market. Whether as an immediate play or a long-term play on global vaccines, investors will want some exposure to this growth. The 'GERM' ETF is a good place to start.
Is the 'GERM' ETF a Good Buy Here?
The newborn GERM fund is undoubtedly small with assets under management (AUM) of around $53 million and relatively light trading volume. However, there appears to be ample liquidity which should only improve over time.
The 'GERM' ETF began trading at $25.30 in mid-June. Within about a month, it shot up nearly 40% as investors looking to get their hands on anything pandemic related scooped up shares. By early September, however, the fund's price fell back below its June debut price as the recent market volatility began to set in.
'GERM' has since staged a bit of a rebound and is trading around $27.50. And despite the hangover from the initial buzz around the fund's launch, the fund is still packed with plenty of growth potential. The recent pullback looks to be a good entry point for investors looking for a unique way to gain exposure to companies on the front lines of the COVID-19 battle and future infectious disease outbreaks.
The 'GERM' ETF is not cheap as it comes with a 68-basis point expense ratio. But given the growth outlook for the global vaccine, treatment, and diagnostic markets, it may be well worth the price.
As the world continues to grapple with the testing and treatment of emerging infectious diseases, this may be one GERM you're glad you have.
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