Cancer Immunotherapy ETF Takes Curious Approach To Asset Allocation
Summary The Loncar Cancer Immunotherapy ETF was launched recently with the goal of targeting companies actively engaged in the treatment of cancer through immunotherapy. The fund’s investment in both healthcare mega-caps and biotech small-caps provide very different exposure to immunotherapy treatments. This fund looks more like a broader healthcare ETF than a pure play on cancer immunotherapy. The ETF world is becoming increasingly niche oriented lately and another niche ETF – the Loncar Cancer Immunotherapy ETF (NASDAQ: CNCR ) – recently joined the fray. Biotech has been a popular place to create a new product lately as ETFs targeting companies involved in genomics, drugs in late stage clinical trials and medical breakthroughs have all hit the market in the past 12 months. According to the fund’s fact sheet, the Cancer Immunotherapy ETF “is an equal-weighted index containing both large pharmaceutical and growth-oriented biotechnology companies that are leading in this approach.” It charges an expense ratio of 0.79% and equal weights the portfolio among 30 holdings. How it chooses those 30 holdings is what makes it curious. The fund commits around one third of its assets to some of the world’s biggest pharmaceutical companies that are developing immunotherapy treatment technologies. The remaining two thirds of assets are invested in biotechs that develop their own immunotherapy drugs and treatments. A look at the top holdings of the ETF shows a literal who’s who of the biggest healthcare companies in the world – Celgene (NASDAQ: CELG ), Pfizer (NYSE: PFE ), Amgen (NASDAQ: AMGN ) and Merck (NYSE: MRK ). As a result of the fund’s investment objective and stock selections, the ETF is one third invested in large- and mega-cap stocks and two thirds invested in small- and micro-cap stocks. The portfolio allocation and investing style suggests to me that this fund is more healthcare ETF and less cancer immunotherapy ETF. The mega-cap pharma companies in the portfolio may have cancer immunotherapy as part of their broad corporate strategy but by no means are these companies a pure play on this technology. Even the biotechs that are selected for inclusion in the portfolio have a somewhat low bar for what qualifies them for having exposure to cancer immunotherapy. As would be expected, these companies can have drugs in the pipeline whether they’re in later stage clinical trial or just starting out in the trial phase. But they also qualify if they have something as simple as a partnership with another company to work on developing immunotherapy treatment in the future. The fund’s portfolio makes it difficult to properly categorize this ETF. Its biotech allocation makes it a risky venture since many of these small companies may live or die on the success of a single drug. The significant exposure to the biggest pharmaceutical companies helps limit overall portfolio risk but provides little direct exposure to cancer immunotherapy since they have such broad, developed and diversified drug portfolios. Conclusion Investors looking for a pure play on cancer immunotherapy treatment technologies will likely be disappointed. The mega-cap presence in the portfolio provides a degree of safety for the fund but it also dilutes the exposure to immunotherapy. While many of the biotech holdings employ cancer treatment as a primary goal, there are a handful that have a more diversified drug pipeline further affecting the direct immunotherapy exposure. Individuals looking for more of a broad healthcare and biotech investment may find this choice in the ETF space intriguing but the level of direct exposure to cancer immunotherapy treatments makes this fund less than a pure play.