State Street's new sector ETFs mostly hold the old capped funds

State Street Investment Management listed four sector ETFs on Oct. 14 that mostly hold the firm's old capped sector funds, then add shares of the stocks a cap would cut.

They are the State Street S&P 500 Consumer Discretionary Market Sector SPDR ETF, XLYM; the State Street S&P 500 Consumer Staples Market Sector SPDR ETF, XLPM; the State Street S&P 500 Energy Market Sector SPDR ETF, XLEM; and the State Street S&P 500 Technology Market Sector SPDR ETF, XLKM. The funds' inception was Oct. 13, and they listed on NYSE Arca the next day, each charging 0.12%.

Leverage Shares by Themes, REX Shares and F/m Investments listed three more ETFs the same day.

The new funds hold the old capped ones

State Street says the four are built to track market-cap-weighted S&P 500 sector indexes, and to do it while complying with the diversification rules for a regulated investment company. Each fund primarily holds the matching Select Sector ETF, individual stocks in the index, and derivatives.

The old funds track capped Select Sector indexes, and the tax rule is what forces the mix.

A regulated fund generally cannot put more than 25% of its assets in one company's securities. Shares of another regulated fund do not count toward that limit, so a new fund can fill most of its portfolio with the old ETF and keep any stock it holds itself under 25%.

Amazon is the case that shows it. Amazon was 42.95% of the S&P 500 Consumer Discretionary Sector Index on Oct. 14, more than that test allows in one company's stock.

XLYM put 64.04% of its assets in the State Street Consumer Discretionary Select Sector SPDR ETF, AXLY, and 17.70% in Amazon shares. The new fund is the old capped fund, plus an extra stake in the stock the cap cuts.

State Street pairs the other three the same way, with the State Street Consumer Staples Select Sector SPDR ETF, AXLP, the State Street Energy Select Sector SPDR ETF, AXLE, and the State Street Technology Select Sector SPDR ETF, AXLK.

The new six-name fund holds swaps, not shares

Leverage Shares by Themes listed the Leverage Shares MANGOS ETF, MGOL, on Nasdaq the same day. MANGOS is the fund's name for Meta Platforms, Anthropic, Nvidia, Alphabet, OpenAI and SpaceX. The fund is actively managed, does not track an index, is not leveraged and has no daily reset. It puts at least 80% of net assets into exposure to those six names. The expense ratio is 0.99%.

"By combining exposure to both publicly traded and privately held innovators within a single actively managed ETF, we're giving investors a new way to access some of the most influential companies driving technological advancement," Paul Marino, chief revenue officer of Themes ETFs, an affiliate under common control with Leverage Shares, said.

On Oct. 14, MGOL held six swaps and a trace of cash. Swaps on Meta, Nvidia, Alphabet and SpaceX were 21.76%, 21.51%, 21.32% and 20.41%. Swaps on Anthropic and OpenAI were 7.47% and 7.45%.

A swap is a contract with a counterparty, not a share. OpenAI and Anthropic do not trade. SpaceX trades as SPCX, and the fund held a swap rather than the stock.

This is not the first fund with the six names. Corgi Funds' Corgi MANGOS ETF, MN, began trading Oct. 2 on Cboe BZX Exchange, 12 days earlier. It charges 0.20% and had $71.7 million as of Oct. 15.

Its holdings that day were shares of Meta, Alphabet, Nvidia and SpaceX, and swaps on those same four names that were nearly as large as the share stakes.

OpenAI and Anthropic were swaps only. MGOL held no shares.

The peptide fund opens on three drugmakers

REX Shares listed the REX Peptide ETF, PEPT, on Nasdaq. It tracks the VettaFi Peptide Index and charges 0.65%.

The index is wider than a list of obesity-drug makers. Eligible businesses include therapeutics, manufacturing and devices, supplements, and skincare. At each quarterly rebalance, 80% of the weight goes to companies that get at least half their revenue from those businesses, or at least half their research pipeline or research spending from peptides. The other 20% can go to companies with a smaller share of that work.

GLP-1s are the peptide medicines behind the leading weight-loss drugs.

"Investors have spent three years expressing the GLP-1 trade through two stocks," Greg King, chief executive and founder of REX Shares, said. "The companies that develop, make, and deliver peptides are where the next phase of growth has to run through."

On Oct. 14, PEPT's largest holdings were three drugmakers, not two. Eli Lilly was 12.81% of the fund, Ascendis Pharma, a Danish drugmaker, was 10.26%, and Novo Nordisk was 10.23%.

The 12% cap applies to the index at rebalance, not to the fund's weight every day.

The index had 36 constituents as of Sept. 30. The fund had 34 holdings and $501,200 in assets.

REX's page calls PEPT the first U.S.-listed pure-play peptide ETF. A fifth of the index can sit in companies that get less than half their revenue or research from peptides.

Roundhill Investments already runs an active fund for the narrower weight-loss trade, the Roundhill GLP-1 & Weight Loss ETF, COZEM. It began trading May 21, 2024, charges 0.59% and had $54.1 million as of Oct. 14.

A longer inflation-protected bond, not a cheaper one

F/m Investments listed the F/m Long-Term Treasury Inflation-Protected Security (TIPS) ETF, RTHY, on Nasdaq, with an inception date of Oct. 14. The expense ratio is 0.19%. The fund seeks the Bloomberg U.S. TIPS 25+ Year Equal Weight Index. F/m says it invests in Treasury inflation-protected securities with 25 to 30 years to maturity and expects to pay distributions monthly.

The long end of this market already has a large fund. The PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund, CLTPZ, has tracked the BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index since Sept. 3, 2009. It charges 0.20% and had $1.01 billion as of Oct. 14.

RTHY is not a cheaper version of that fund. The fees are a hundredth of a percentage point apart, and the difference is the bond. Equal-weighted inflation-protected Treasuries with at least 25 years left are a longer bet than a 15-year-and-longer index.

An inflation adjustment changes the principal with consumer prices. It does not remove the interest-rate risk in a long bond. CLTPZ lost 31.6% in 2022, on a net-asset-value total-return basis.