As investors' appetite for the burgeoning cannabis market continues to skyrocket, Canada's first actively managed marijuana-themed exchange-traded fund is set to launch this week.
Redwood Asset Management, a subsidiary of Purpose Investments – the company formed by Canadian ETF pioneer Som Seif in 2013 – will begin trading the Marijuana Opportunities Fund on Thursday morning.
It will become Canada's second cannabis-focused ETF. The first was launched last spring by Horizons ETF Management (Canada) Inc., but, unlike Redwood's offering, is not actively managed. With the ticker HMMJ and traded on the TSX, the fund tracks the North American Marijuana index and quickly collected more than $100-million in assets under management within the first month.
HMMJ has been the most popular overall Canadian ETF this year, far surpassing even broad market-tracking ETFs. Its year-to-date inflows of $243-million are almost double those of the BMO S&P 500 Index ETF, which has had inflows this month of $132-million, according to Bloomberg data. The third-most popular fund, the iShares Core MSCI EAFE IMI Index, had inflows of $117-million. HMMJ currently has more than $800-million in total assets under management.
With the ticker MJJ and to be traded on the Neo exchange, the Marijuana Opportunities Fund ETF will also be available to investors in a mutual-fund offering. Management fees are 0.75 per cent for the ETF and F-class mutual fund, and 1.75 per cent for the A-class fund. Both the ETF and mutual-fund series will be managed by Greg Taylor, a portfolio manager with Redwood Asset Management.
"With the recent activity over the last year, the marijuana sector has become a real meaningful marketplace and has been driving a lot of investor attention," said Vlad Tasevski, vice-president at Redwood and Purpose Investments. "As well, on a regulatory basis, Canada has been at the forefront in the legalization of cannabis and is several months or even years ahead of other jurisdictions. As a result, Canada's capital market has the potential to become a global leader in this space."
At the fund's outset, approximately 12 individual companies will be included that are "more directly focused on the cannabis" sector, compared with other funds in the market, Mr. Tasevski says.
Popular pot stocks that have been grabbing the attention of investors – such as Canopy Growth, Aphria and Cannimed – will be included in the fund, as well as stocks that are not commonly found in competitor funds – such as Village Farms International Inc., an organic greenhouse farmer. The ETF will seek opportunities in cannabis and cannabis-related companies on a global basis.
"There are always going to be winners and losers in a sector and not every company will win. Given the lack of institutional investors at this point in time, volatility is very high. This makes active, selective management preferable to passive index funds," Mr. Tasevski argues.
With legalization in Canada expected as soon as this summer, fund companies in both Canada and the United States are looking to cash in.
Earlier this month, Evolve Funds Group Inc. filed a preliminary prospectus with regulators to launch the Marijuana ETF and – until now – had hopes of being the country's first actively managed fund. With the ticker SEED, upon approval, the fund will invest in its own actively managed portfolio comprised of a diversified mix of both domestic and global equity securities of companies, with business activities in the recreational and/or medical marijuana industry. The fund will be managed by Evolve Fund and have a management fee of 0.75 per cent.
Also this month, Horizons filed a preliminary prospectus with regulators in hopes of launching a second marijuana-focused fund; it would look to capture small-cap companies in the industry with the Horizons Junior Marijuana Growers Index ETF. In the United States, marijuana ETFs made a debut last December when ETF Management Group launched the ETFMG Alternative Harvest ETF (MJX). The fund was previously known as the Tierra XP Latin America Real Estate ETF (LARE). After changing its name, investment mandate and ticker, ETFMG didn't have to endure a lengthy new filing with regulators and therefore gained a huge first movers advantage in becoming the first marijuana fund in the U.S.
The fund instantly saw a flurry of investor activity with more than $240-million (U.S.) in new assets within its first week of trading and now has more than $420-million in assets under management