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analysis

Timing appears to be everything in the world of cannabis funds.

Just over one year ago, the world’s first cannabis exchange-traded fund – officially known as the Horizons Marijuana Life Sciences Index ETF – started trading. Today, it has assets of roughly $700-million, a total return of 75 per cent since inception, and big inflows.

But it’s a very different story for newer ETFs in the marijuana space.

In February, three funds started trading: the Horizons Emerging Marijuana Growers Index ETF, which focuses on small caps; and two actively managed funds, the Evolve Marijuana ETF and Redwood Asset Management’s Marijuana Opportunities Fund.

Though it’s early, all three have struggled to grow their total assets. Granted, they launched during a down period for the sector, with returns ranging from negative 3.9 per cent to negative 16.1 per cent since inception, as of Monday’s close.

But it was a rocky start for Horizons’ first fund, as well. Two months after its debut, HMMJ was down nearly 20 per cent. Total assets, however, held above $100-million, having vaulted into nine figures within days of the fund’s debut.



Moreover, HMMJ has stayed quite popular, based on fund flow data. Despite some sector weakness in 2018, HMMJ has a net inflow of $307-million this year, fourth highest among all Canadian-listed ETFs, according to Bloomberg data as of Monday. Since they started trading, Redwood and Evolve’s marijuana funds have net inflows of $4-million and $2.1-million, respectively. Horizons’ second marijuana ETF is net even on fund flows since it launched with $15-million, the company says.



U.S. competition might also be weighing on the Canadian upstarts.

The ETFMG Alternative Harvest ETF, which is listed in New York, “substantially revised” its investment objective in late 2017 to focus on marijuana. Its holdings aren’t wildly different from existing funds, with loads of exposure to Canadian licensed producers. There was clearly pent-up demand for a U.S.-based marijuana play: total assets skyrocketed in no time.



Then there are returns. Since Feb. 12, the Evolve fund’s first day of trading, that ETF is down 10 per cent, while Redwood’s is down 10.3 per cent over the same period, as of Monday’s close. HMMJ’s total return since Feb. 12 is negative 8 per cent. If you exclude HMMJ’s dividend – the other funds have not made distributions – it’s down 9.5 per cent. In other words, early returns suggest active management is no better in the volatile world of marijuana stocks.

These upstart funds may yet prove themselves, but based on results to date, being first to market appears to carry a big advantage.

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