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You Can Invest in a Cannabis Mutual Fund—But Should You?

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Many investors prefer to invest in mutual funds or exchange-traded funds (ETFs) in order to avoid the hassle of researching and buying individual securities. These funds allow an investor to participate in the market or a sector of the market with a single security that represents a diversified portfolio.

Until late 2016, there were no cannabis-focused mutual funds or ETFs. Late that year, a mutual fund, American Growth Funds (AMREX), changed its mandate and began to focus on the cannabis sector with its Series Two fund, becoming “the first diversified mutual fund focused on the cannabis business.”

At last report the Series Two fund has been a complete disaster. The fund has performed poorly and failed to grow assets. As of January 31, 2018, its semi-annual report revealed the size of the fund as just $895,009, which isn’t sufficient to adequately cover the fund’s expenses. Finally, a review of the holdings reveals the names of companies that aren’t really cannabis-related—like Valeant Pharmaceuticals, Vestas Wind Systems, Microsoft, and Abbott Labs—as well as some stinkers, like Grow Condos, MassRoots and CannaGrow Holdings.

Heavily Into Canadian LPs

Things changed in 2017 when UIT Alternative Health Fund, run by Faircourt Asset Management, converted from UIT Global REIT Fund. The fund is only partially focused on cannabis, as it also invests in the broader nutritional and nutraceutical market as well. UIT Alternative Health reported assets of C$10.39 million as of April 30, with its top ten holdings consisting of mainly large Canadian licensed producers, including Aphria, CannTrust, Canopy Growth, Hydropothecary, MedReleaf and Organigram. GW Pharma is a top position as well, but the balance includes Jamieson Wellness, Pinnacle Foods and UnitedHealth.

Fund managers described its sector allocation as 42.2% cannabis LPs, with the remaining exposure in other wellness (16.4%), cash (16.2%), pharmaceuticals and health technology (15.5%) and organics, supplements and nutraceuticals (10.0%). In the year ending April 30th, it reported a return of 40.77%.

An ETF on the Rise

Making a bigger splash was the Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ) (OTC: HMLSF), which now boasts assets of C$730 million and trades very actively. I was somewhat critical of the fund when it debuted, suggesting that its construction was poor and that investors could replicate it on their…

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