By Kip Meadows, Founder and CEO of Nottingham.
The launch of 4 new cannabis ETFs in 2019, paired with the current filing for but one more a single, has a lot of investors questioning how to navigate amongst the choices as they seek exposure to the developing cannabis market. There are important variations amongst the existing choices, or at least sufficient differentiation to deliver some choice points.
The oldest and nevertheless biggest cannabis ETF on the market place is the ETFMG Option Harvest ETF (NYSE: MJ). MJ got a jump-start out by amending a South American true estate ETF into a cannabis ETF. This unorthodox alter caught each the SEC and the ETF’s custodian by surprise, with the custodian resigning throughout the initially couple of months of operations.
The MJ investment objective is pretty broad, and an examination of the portfolio indicates a lot more than 17% is allocated to tobacco stocks, with other sizable positions like fertilizer firms, breweries and true estate investment trusts (REITs). It is complicated to envision how the cannabis market will move the stock cost needle on any tobacco firm, fertilizer firm or international brewing holding firm for the subsequent decade at least. Probably there will take place a time when cigarette rolling gear and distribution networks will be helpful to the cannabis market, but not any time quickly. The very same goes for agricultural fertilizer firms, which probably derive significantly significantly less than 1% of their revenues from offering fertilizer to cannabis growers.
The trading spread on MJ has not too long ago averaged .24%, though the ETF has an expense ratio of .75%.
The other 4 cannabis ETFs can be differentiated initially by these that are actively managed and these that are index ETFs. Like MJ, the Cambria Cannabis ETF (BATS: TOKE) and the Cannabis ETF (NYSE: THCX) are index ETFs, though the AdvisorShares Pure Cannabis ETF (NYSE: YOLO) and the Amplify Seymour Cannabis ETF (NYSE: CNBS) are actively managed.
YOLO was the second cannabis ETF to come to be out there in April 2019. YOLO’s portfolio is a lot more closely aligned with correct cannabis issuers, even though 17% of that exposure is accomplished by means of the use of swaps and derivatives. A effectively-constructed swap does deliver higher correlation to the underlying tracked asset but can prove complicated for market place makers to cost into the bid/ask spread for the ETF. This can be…
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