If you ask about the most popular hype topic in the market this year, there must be a place for the "slimming elixir". Just last month, luxury goods giant LVMH has relinquished its position as the most valuable listed company in Europe to weight loss drug leader Novo Nordisk. The latter's weight loss drugs Ozempic and Wegovy have been highly sought after by the market, and their stock prices have risen by 45% this year.
But the constantly expanding market value has also brought some problems to this Danish pharmaceutical company. The total market value of the 25 companies that make up the OMX Copenhagen 25 index is currently about $750 billion, while the market value of Novo Nordisk is as high as $430 billion.
Such a large weight is a problem, as few professional investors or fund managers are willing to invest more than 10% of their funds in a stock, even if they are allowed to do so. The rules for managing mutual funds in Europe limit the proportion of individual stocks held to no more than 10%, and similar restrictions will be implemented by funds in other regions to mitigate potential risks.
As a result, many Danish fund managers have been forced to sell Novo Nordisk stocks for many years. Whenever the value of the company's stock accounts for more than 10% of its total holdings, they sell without considering their views on so-called fundamentals such as profit growth prospects. Of course, the sell-off did not prevent Novo Nordisk from continuing to rise, but if local investors were allowed to hold more stocks, the performance of the stock might be better, and investors' returns would also be higher.
In the much larger US market, the issue of heavyweight stocks is relatively much easier. In the United States, Apple, the company with the highest market value, holds a weight of around 7% in the S&P 500 index.
In the first half of this year, when US technology stocks soared, weight issues made it difficult for fund managers to outperform the market. If Apple's stock price continued to rise, the problem would become more prominent, further affecting the performance of active fund managers.
The issue of weight may also be the reason why Lilly performs better than Nuo and Nord. Of course, this difference may also have its root cause. Danish bank analyst Neergaard Poll said, "Lilly has a medication for treating Alzheimer's disease, which Novo Nordisk does not have, and the data on Lilly's latest weight loss medication is also very good
In addition, compared to European stock markets, the US stock market seems to be more inclined to speculate on topics such as weight loss, perhaps because individual investors have a higher level of participation.
The same issue has prompted Linde Gas, the world's largest industrial gas supplier, to delist from the Frankfurt Stock Exchange and switch to a separate listing on the New York Stock Exchange. On an investor day in October last year, the company pointed out that whenever its weight in the German DAX index exceeded 10%, it would be sold off, and when it fell below 10%, its stock price would outperform the broader market.