Royalties and cancer treatments: Thematic ETFs take new directions

Tema ETFs providing new opportunities for diversified portfolios.

Investors in thematic funds have an ever-increasing range of funds to assist diversification and there are now new funds focused on royalty companies and cancer treatments.

Tema ETFs has launched the actively managed Tema Global Royalties ETF and the Tema Oncology ETF, claiming the only ETFs of their kind to be listed in the U.S.

The royalties fund gives investors exposure to a range of global companies that primarily derive their income from royalties, such as those in the commodities, pharmaceuticals, entertainment, and renewables and technology sectors. Companies in these sectors historically see structural growth.

Tema’s CEO, Maurits Pot, says royalties are a differentiator for companies, offering a 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 difficultly accessible private assets, underlying commodities, and deliver equity-like returns with contractually supported income,” he added. “These benefits are particularly evident in today’s high interest rate environment.”

Tema highlights Bloomberg data that show strong dividend yield for royalty companies and notes how royalties are exposed to the “attractive attributes of their underlying assets while limiting the related risks.”

ACTIVELY MANAGED

The new fund is managed by Chris Semenuk, a portfolio manager with more than 30 years of experience.

He says that royalties are expected to become a more prevalent way for companies to access alternative sources of financing due to their tailored and flexible nature.

“Royalties remain a nascent yet fast growing form of financing, which are becoming more relevant in the current high traditional cost of financing environment,” he said. “We believe royalties will prove an important source of capital for the next stage of life sciences innovation, as well as funding commodity projects required to sustain global growth to avoid the inflationary supply side squeezes which we have witnessed in the past 24 months.”

CANCER FUND

Meanwhile, the Tema Oncology ETF offers opportunity to invest in companies that are leading the fight against cancer.

Pot says this is one of the biggest megatrends in biotech.

“Oncology is a critical yet complex sector, where the number and nature of risks as well as the need for expertise cannot be underestimated,” he said. “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.”

Pot added that this complexity requires active management. “We believe deep biomedical and investing background combined with Tema’s risk management process is critical to effectively manage an oncology ETF.”

Managing the fund is David Song, MD, PhD, CFA, who has led biotechnology and health care investment teams throughout his extensive 25-year career.

“The progress and speed of innovation we’re witnessing in oncology is very exciting and from an investment perspective, oncology is more accessible than ever before,” said Song. “Oncology is one of the largest and fastest growing segments of broader healthcare globally. There is significant value in the life science sector, following the recent sell-off, as one-quarter of small biotech firms trade at market caps below the net cash on their balance sheet.”