2019 has been a volatile year for the cannabis sector. After delivering big gains early in the year, cannabis stocks fell into a bear market this summer.
Bear markets are actually pretty normal for the cannabis sector. Cannabis stocks have experienced and recovered from bear markets in each of the last three years.
However – the recent wave of volatility has cannabis investors asking an important question.
Is there a quick and easy way to diversify my cannabis portfolio?
I am going to reveal the answer to this question and a simple way to make it happen.
The ETFMG Alternative Harvest (NYSE: MJ) is the largest cannabis index fund in the market. The fund has assets under management of about $850 million and started trading on the US-based NASDAQ exchange back in December of 2015.
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- This is the largest cannabis fund in the market.
- Primarily invests in North America cannabis stocks.
- Has been less volatile than many individual cannabis stocks.
This fund offers diversified exposure to the North American cannabis industry. The MJ fund currently holds 37 cannabis stocks that operate across North America.
The fund is overweight in Canadian cannabis companies.
Its top five holdings include Canadian leaders Aurora Cannabis (ACB), Cronos Group (CRON), Canopy Growth Corp. (CGC), and Tilray (TLRY).
The MJ fund isn’t just a play on Canada. Many of these Canadian cannabis companies have operations in the US and the fund has a 27% allocation to US cannabis companies.
US holdings include Innovative Industrial Properties (IIPR) and Corbus Pharmaceuticals (CRBP).
The MJ fund owns cannabis companies that operate in almost every cannabis subsector, including cultivation, dispensaries, accessories, and pharmaceuticals.
So, not only does the fund offer geographic diversification, but it also offers subsector diversification.
The MJ fund has held up well in the bear market. Shares are down 7% in 2019 and 32% in the last twelve months. That is better than cannabis sector leader Canopy Growth Corp, down 16% in 2019 and 52% in the last twelve months.
Looking forward, here’s how I expect the MJ fund to perform relative to the broader cannabis sector.
If the cannabis sector is in a bull market, I expect shares to rise less than individual sector leaders such as Canopy. But if the cannabis sector is in a bear market, I expect shares to fall less than Canopy.
Just like every mutual and index fund, MJ has an expense ratio. The expense ratio of .75% is higher than the category average. However, this is the largest and most experienced cannabis fund in the market so that higher expense ration seems reasonable.
Alternatives to MJ
The cannabis sector doesn’t have that many funds to choose from. My research tells me that there are five active funds. Here is a quick rundown.
- Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF) (TSE:HMMJ).
- AdvisorShares Pure Cannabis ETF (NYSE: YOLO).
- Cannabis ETF (NYSE: THCX).
- Amplify Seymour Cannabis ETF (NYSE: CNBS).
The Big Picture on Cannabis Funds
Investors looking for a quick and easy way to get diversified in the cannabis sector should check out the MJ cannabis fund.
The fund is diversified by geography and cannabis subsector and has been less volatile than many early industry leaders such as Canopy.
In the long run, I think early industry-leading cannabis stocks will outperform this fund. But for investors who want to diversify, this is a good option.
Disclosure: Michael Vodicka owns shares Canopy Growth Corp (CGC), Aurora Cannabis (ACB), GW Pharmaceuticals Plc (GWPH), and Innovative Industrial Properties (IIPR) at the time of this writing.
About the Author & Cannabis Stock Trades
Michael Vodicka is an equity analyst with more than 20 years of experience in trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.
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