Investors for the first time will be able to purchase exchange-traded funds to bet against pot stocks – or alternatively, double down on a wager that the cannabis sector is about to move higher.
Horizons ETF Management Canada Inc., the provider of the world’s first marijuana-focused ETF – the Horizons Marijuana Life Sciences Index ETF – received regulatory approval on Tuesday to launch two new leveraged pot ETFs this Friday on the Toronto Stock Exchange.
Leveraged ETFs – also known as “double ETFs” – typically aim to deliver two or three times the return on their stated index, while the inverse sees profits when returns on an index decline. These products carry a higher risk rating than typical ETFs.
Horizons ETFs is the only provider of leveraged ETFs in Canada, with 25 leveraged funds on its shelf. The funds will exist within its existing BetaPro fund lineup, and carry a management fee of 1.45 per cent.
The BetaPro Marijuana Companies 2x Daily Bull ETF (HMJU) and BetaPro Marijuana Companies Inverse ETF (HMJI) both will track the North American MOC Marijuana Index, which in turn tracks the daily performance of a basket of North American publicly listed companies with significant business activities in the marijuana industry.
“There is significant demand from investors to ‘short’ marijuana stocks because they think it is oversold,” said Mr. Hawkins, president and CEO of Horizons. “We are in the business of providing liquid trading opportunities to the marketplace with our Betapro lineup and these products are going to complement that.”
HMJI will aim to provide investors with results that correspond to one times (100 per cent) the inverse (opposite) of the daily performance of the index, while HMJU will correspond to two times (200 per cent) the daily performance of the index.
The company had originally filed for the funds last summer – along with a third ETF that would provide two times the inverse (the company decided not to launch the third fund.)
The majority of people who buy leveraged or inverse funds are self-directed investors with short-term investment horizons, and the fund’s investment prospectus warns them about the risks involved with this type of investment.
Leveraged and inverse ETFs made headlines last year after a one-day plunge of 1,175 points in the Dow Jones Industrial Average was attributed to leveraged volatility-investment products.
Mr. Hawkins said that because of the underlying volatility involved, the regulators took their time reviewing the funds before approving.
“There are a lot of updated disclaimers and specific risk language in the [investment] prospectus and we are trying to be very upfront with investors – just like we did with our VIX products," Mr. Hawkins said. "We want investors to be aware of the risks involved.”
Clare O’Hara