YOLO - Does a Marijuana ETF Belong in Your Portfolio?
Investing in exchange-traded funds (ETFs) can be a great way for investors to diversify their portfolios without having to individually buy several different stocks. That might be especially important when it comes to the marijuana industry, where there may be concern about individual companies, but the sector as a whole still shows a lot of growth potential. That's where an ETF could help minimize the company-specific risk while giving investors the ability to benefit from long-term gains in the sector.
One of the better-known ETFs is the Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF), which holds some of the top players in the industry, including Canopy Growth (NYSE: CGC) and Aurora Cannabis (NYSE: ACB), among many others. Unfortunately, because those big companies have made up a sizable proportion of the ETF (Canopy at 10.8% and Aurora at 9.5%), they've also exposed the fund to their struggles.
The ETF has fared no better and no worse than Canada's top two pot stocks; it has fallen 31% since the beginning of the year, which is in line with both of their performances thus far. On a positive note, the ETF has been able to avoid the collapse that's crippled CannTrust (NYSE: CTST) investors by having a more diversified portfolio, and while it might have included the stock in the past, it doesn't today.