A new exchange-traded fund needs an edge to attract investors. This might be its industry focus — a tall order in a crowded market with ETFs covering just about any industry you can imagine. Or the ETF manager might tout its investment-selection method or low expenses. So what are we to think of an ETF that is less than five months old and has performed very well so far?

Most Read from MarketWatch

• ‘My half-siblings are trying to slither their way in to get a handout’: How do I make sure my parents only leave their home to me?

• ‘Serious possibility’ that Fed’s next rate move is a hike, warns Larry Summers

• Nikola’s proposal for reverse split sends its stock even further below $1

• Economist who predicted no 2024 interest-rate cuts blames Fed for inflation resurgence

• I invested half of my son’s inheritance with a 13.5% return. A major broker underperformed the S&P 500 with the rest. Should I take over all his assets?

The Tema Obesity & Cardiometabolic ETF HRTS was launched on Nov. 20 (with shares first available to trade the next day), and it now has about $62 million in assets under management. Tema CEO Maurits Pot described HRTS as “the first obesity and weight-loss drug-focused ETF” and said during an interview with MarketWatch that it remained the only one in that niche.

Comments from Pot and Tema’s Chief Investment Officer Yuri Khodjamirian about what they view as a tremendous untapped market for GLP-1 medications and for improving cardiovascular health are below, along with their discussion of the fund’s stock selection methodology and top holdings.

Considering the importance of GLP-1 medications for the treatment of Type 2 diabetes and their increasing use for weight loss, this can only be described as a very hot space for investors right now.

With such a short performance record to go on, it is no simple matter to compare HRTS with competing funds. But we can still look at some performance data for insights.

Fund performance

To begin, here are total returns from Nov. 21 through Monday for HRTS, two competing index ETFs covering industry groups within the healthcare sector, the Health Care Select SPDR ETF XLV, which tracks the S&P 500 healthcare sector, and the SPDR S&P 500 ETF Trust SPY, which tracks the full S&P 500. These four ETFs all have lower annual expenses than HRTS, as shown on the table.

Below the five ETFs are weighted returns for three industry groups within the S&P 500 healthcare sector, as calculated by FactSet. Returns for longer periods are shown for all except for the new HRTS. All returns are after expenses.

The Tema Obesity & Cardiometabolic ETF has outperformed all of these ETFs during its short life, even though its annualized expense ratio, as an actively managed fund, is the highest by far. The fund’s stated annual expenses are 0.99% of assets under management. However, Tema has capped expenses at 0.75% through June 2025.

Longer-term, the Health Care Select Sector SPDR ETF has had the best returns for three, five and 10 years among the industry or sector-focused ETFs on the list. But the SPDR S&P 500 ETF Trust has bested it for all three periods.

Getting back to the Tema Obesity & Cardiometabolic ETF, what if an investor had simply held the fund’s current top 10 holdings during its short life?

The fund’s third-largest holding is Novo Nordisk A/S Class B shares DK:NOVO.B, listed in Denmark. But for U.S. investors, there is an American depositary receipt (ADR) available, under the ticker NVO NVO. Khodjamirian explained that if there is a choice between a locally-listed stock or an ADR, the Tema Obesity & Cardiometabolic ETF will hold whichever is more liquid.

The average total return for the fund’s top 10 holdings from Nov. 21 through April 8 was 35.3% — ahead of the fund’s return of 24.2% return.

When asked to address the relatively high expenses for the ETF and the higher return for some of its components, Pot said Tema was “trying to dial-down the risk” by taking “a more full approach to the GLP-1 space.”

Looking ahead

To set the stage for a look ahead at expected revenue and profit growth for the largest 10 holdings of the Tema Obesity & Cardiometabolic ETF, here are expected compound annual growth rates (CAGR) from 2023 through 2025, based on weighted estimates among analysts polled by FactSet for three health industry groups within the S&P 500, the index’s healthcare sector and the full index:

For the fund’s top 10 holdings, here are revenue numbers for 2023 and consensus estimates (in local currencies) among analysts polled by FactSet for 2024 and 2025, with expected CAGR through 2025. These are calendar-year numbers, as adjusted by FactSet for companies whose fiscal years don’t match the calendar.

And here are earnings-per-share numbers, estimates and expected EPS CAGR:

Click the tickers for more about each company.

Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

Among the fund’s largest 10 holdings, eight of the companies have expected sales CAGR exceeding those of the industry groups and S&P 500, as shown above. The earnings growth expectations are also impressive, but so are those for the industry groups and the index.

Commentary about stock selection and the largest holdings

Pot and Khodjamirian believe that even with all the coverage of the GLP-1 space — especially Novo Nordisk and Elli Lilly & Co. LLY — the potential market for these medications to treat Type 2 diabetes and for weight loss, remains mostly untapped.

Beyond those immediate uses, Pot said there was potential to attack “the root cause” not only for cardiovascular disease, but even neurodegenerative diseases. The biotechnology industry is “slowly proving that these GLP-1 drugs and other anti-obesity medications work” to prevent or limit the effects of a variety of diseases, he said.

In a presentation on March 4, Novo Nordisk cited data from the International Diabetes Foundation when saying that only 15% of 537 million people around the world with diabetes had the disease under “good control.” The company said that among 813 million obese people, only about 2% were receiving medical treatment, according to World Obesity Atlas data.

Pot emphasized the need to capture the potential growth as an increasing number of people make use of GLP-1 medications to treat obesity, because “demand outstrips supply.” But he also said it was important to look ahead at new medications that may have fewer side affects and even other approaches to improving cardiovascular health over the long term. Here are comments from him and from Khodjamirian about six of the fund’s largest holdings:

The Tema Obesity & Cardiometabolic ETF held 45 stocks as of the close on April 8.

Khodjamirian said that David Song, the fund’s portfolio manager, an MD with 25 years experience managing investment portfolios, was focused on selecting companies with a “solid foundation,” even if they were at pre-revenue phases.

Song also looks for “an edge,” which can be “informational, behavioral or analytical,” Khodjamirian said.

For an early-stage example, Khodjamirian named Viking Therapeutics VKTX, which made up 1.9% of the portfolio at the close on April 8. He said the company’s management team had long experience and was “thoughtful in its R&D process,” taking a long-term approach to ”building a platform for development.”

Following positive clinical trial indications for its weight-loss medication, Viking raised $550 million through a discounted offering of shares late in February. Khodjamirian said that with the cash infusion, the company was “well-placed to seek a partner or go it alone.”

More: Viking Therapeutics posts positive results for oral weight-loss drug. Analysts remain unanimous the stock’s a buy.

Most Read from MarketWatch

• My elderly parents are hoarders. I see them once a year. They say cleaning up their ‘junk’ will be my problem after they die. What can I do?

• I earn $120,000 a year and have $165,000 in savings. How do I invest in this high-interest-rate environment?

• Why is Ford deepening its hybrid push? It comes down to one word.

• ‘Please don’t judge me’: I’m 54, and married with 5 kids. I have $20,000 in debt and $20,000 in mutual funds. I just inherited $10,000. How do I invest it?

• Where home-insurance costs are rising the fastest in the U.S. — it’s not California or Florida