Canadian asset manager Evolve Funds Group Inc. is shuttering three of its niche investment funds, including a pioneering gender-diversity exchange-traded fund that failed to draw investor interest.
The ETF provider, which manages $630-million in 17 funds, was the first company to launch a gender-diversity-themed fund in Canada in 2017. The Evolve North American Gender Diversity Index ETF (HERS), which tracks North American companies that have demonstrated a commitment to gender diversity as part of their corporate responsibility strategy, has only managed to attract $4.3-million in assets under management.
On Monday, Evolve announced it was de-listing HERS as well as the Evolve Marijuana Fund (SEED) and the Evolve U.S. Marijuana ETF (USMJ) from the Toronto Stock Exchange and the NEO Exchange by the end of March 30.
The lack of investor interest in the gender-diversity fund “surprised” Evolve CEO Raj Lala, who said in an interview that the fund’s assets were a “big disappointment.”
There are four gender-focused funds in Canada, all struggling to draw investor interest. Despite major financial companies such as Goldman Sachs announcing they would not support companies that did not improve their gender-diversity policies and practices, investors have not flocked to the concept.
“While there is clear commitment to make strides in gender diversity across the investment industry, the market does not appear to correlate gender-diversity commitments and achievements with financial performance,” Mr. Lala said in an e-mail. “Our fund, and similar gender-diversity products, did not see the inflows we originally anticipated when we launched."
Evolve is also exiting the cannabis sector with the closing of its two actively managed pot funds: SEED and USMJ. While once one of the hottest investments in Canada, cannabis stocks and the funds that specialize in investing in them have had a rocky year since Canada legalized retail sales in late 2018.
Evolve first entered the sector in February, 2018. SEED had just less than $6-million in assets as of Jan. 24, while USMJ had about $2-million. At one point, SEED was the best-performing pot ETF in the country, hitting a high of $30.66 a unit after it initially launched at $20.48. It is currently trading at $11.61, as of Jan. 27.
In 2019, SEED’s performance was minus 34.06 per cent, trailing the North American Marijuana Index, which had a return of minus 31.51 per cent.
Mr. Lala said his outlook has changed for the entire cannabis space on both sides of the border. He said the sector is unfortunately getting indirectly “co-mingled” with the vaping crisis.
“In Canada, over-regulation has stifled sales, the retail roll-out has really struggled and companies have not been able to deliver on investors’ expectations,” he said. “In the U.S, we felt federal legislation was right around the corner and would lead to massive growth potential for a lot of these companies.”
However, he said the crisis over vaping-related health problems "has stalled any of the U.S presidential candidates from putting cannabis legalization on any of their platforms for election or re-election.”
Several other cannabis ETFs continue to trade in the Canadian market including the Purpose Marijuana Opportunities Fund (MJJ) and the world’s first pot ETF – the Horizons Marijuana Life Sciences Index ETF (HMMJ) – which saw quick success, hitting $1-billion in assets just before legalization hit in Canada. Its assets have since dropped to $485-million, as of Jan. 24.
Daniel Straus, a research analyst with National Bank Financial, said in an interview the cannabis-fund closings underscore just how competitive the ETF market is, especially for thematic ETFs, where “first-mover advantage” can be as important as track record and fees.
“In the case of these two [cannabis] ETFs, they were competitively priced, but in each case there may have been other similar ETFs that staked territory a bit earlier, grabbing that first-mover advantage," he said.
Clare O’Hara