Tema has expanded its suite of active risk-managed thematic ETFs in the US with two new funds targeting oncology-focused healthcare companies and firms that primarily earn their revenue from royalty income.
Maurits Pot, Founder and CEO of Tema.
The Tema Oncology ETF (CANC US) and Tema Global Royalties ETF (ROYA US) have been listed on Nasdaq and Cboe BZX Exchange, respectively.
Each ETF comes with an expense ratio of 0.75%.
Tema’s investment process is driven by a combination of top-down fundamental sector research, industry-specific expertise, quantitative tools, and bottom-up security analysis.
Notably, in contrast to most thematic strategies, which are risk-on trades, Tema maintains that its approach is rooted in risk management and capital preservation. The firm monitors risk through a three-step process, identifying risk factors, assessing risk levels, and ultimately taking aim at managing these risks.
Tema made its ETF debut in May of this year with the introduction of three actively managed thematic funds targeting the investment themes of ‘American Reshoring’, ‘Luxury’, and ‘Monopolies and Oligopolies’.
Oncology
Tema notes that a revolution in biotechnology is driving significant advances in diagnosing and treating cancer. The cost of genomic sequencing has fallen exponentially over the past 15 years, dramatically increasing R&D productivity and contributing to an innovation boom with new technologies such as cell therapy, liquid biopsies, and precision oncology leading the way for safer and more effective diagnoses and treatments.
Oncology represented over 30% of new drug approvals in 2021, up from 25% in the 2010-2019 period and well ahead of other drug classes. Oncology spending is also accelerating with an expected $1.5 trillion to be spent between 2023 and 2027.
CANC is managed by David K. Song who has led biotechnology and healthcare investment teams throughout most of his 25-year career including roles at Rockefeller Capital Management, Millennium, and Balyasny.
The ETF seeks to balance exposure across key oncology areas and company profiles, ranging from diagnostics and care to therapeutics and clinical products, and with exposure to both established and emerging biopharma companies.
Maurits Pot, Founder and Chief Executive Officer of Tema, said: “We’re excited to bring the first oncology ETF to market that offers investors the opportunity to get risk-managed exposure to arguably the biggest biotech megatrend.
“Oncology is a critical yet complex sector, where the number and nature of risks as well as the need for expertise cannot be underestimated. These include scientific, regulatory, financial, and clinical risks. Regulation plays a critical role but varies by jurisdiction and requires experience to interpret and position accordingly. We believe deep biomedical and investing background combined with Tema’s risk management process is critical to effectively manage an oncology ETF.”
Global Royalties
Royalty companies tend to exhibit a relatively efficient and scalable business model which, according to Tema, has contributed to historical outperformance relative to mining companies and underlying commodities.
These firms also benefit from limited exposure to operating and capital costs which significantly reduces operational risk, as well as dilution risk given a royalty will not be diluted if the underlying asset owner raises incremental equity.
In an investor’s portfolio, the theme has the potential to act as a lower beta diversifier, filling both the commodities and equity sleeves while retaining an attractive income profile.
ROYA is managed by Chris Semenuk who has over 30 years of investing experience.
The ETF will invest in royalty companies across various sectors such as commodities, pharmaceuticals, entertainment, renewables, and technology, delivering indirect access to unique private assets in sectors that have historically exhibited structural growth.
Maurits Pot added: “Royalty companies are truly differentiated businesses. For business operators, royalties offer a neat solution to finance growth that avoids equity dilution, particularly relevant in today’s high financing cost and low financing availability environment. For investors, they offer structured exposure to difficult-to-access private assets, delivering equity-like returns with contractually supported income. These benefits are particularly evident in today’s high interest rate environment.”