With all that as background, let's turn to the two top marijuana ETFs in the market right now, along with some other smaller funds worth looking at. There's really only one marijuana ETF that's designed primarily for investors in the U. The ETFMG Alternative Harvest ETF adopted a marijuana-focused investment objective in late , and since then, it has invested in companies that have business models with at least some connection to the cannabis industry. That's given Alternative Harvest the ability to invest in all the categories of marijuana stocks listed earlier in this article, including cannabis cultivators, providers of ancillary products and services for cannabis-company clients, and pharmaceutical companies looking to take advantage of the promising medical attributes of cannabis in developing possible treatments.
Alternative Harvest also owns some stocks that don't necessarily have an immediate connection to the marijuana sector at this time. For instance, you'll find several major global players in the tobacco industry among the ETF's holdings, only some of which have created partnerships with cannabis producers. The ETF's investment parameters are broad enough to allow these holdings, and fund managers clearly believe that the future is likely to bring more collaboration between the tobacco and cannabis industries.
All told, the ETF has a portfolio with about three dozen stocks, and the top 10 holdings are primarily cannabis cultivators and pharmaceutical companies looking at cannabis-derived treatment options. From a performance perspective, Alternative Harvest had a tough year in Investors were excited coming into the year, but most of the stocks in the ETF's portfolio lost ground in an increasingly difficult environment across the broader stock market during the early months of Within the marijuana industry in particular, investors seemed impatient with the slow progress toward expanded legalization of medicinal and recreational cannabis products.
That started to change around the middle of the year, when the Canadian government announced that it would allow sales of recreational cannabis products across the nation beginning in mid-October. That high proved short-lived, however. Once the mid-October date had passed and the Canadian cannabis market was open for business, many investors seemed dissatisfied with the early results and the challenges that arose.
Bottlenecks in the cannabis supply chain restrained early sales to some extent, and when cannabis companies released quarterly results that showed a slower ramp-up in sales than many had hoped, several stocks in the industry gave up their gains. Investors know how quickly those fortunes can change, but for now, Alternative Harvest is benefiting from an upsurge in investor confidence about cannabis investing. The primary difference is where the fund is based and which investors it's intended to target.
- Ciba Foundation Symposium - Strategy of the Viral Genome.
- Richard Hofstadter: An Intellectual Biography.
- Why the marijuana industry is red-hot -- and getting hotter.
Marijuana Life Sciences shares aren't registered with the U. Securities and Exchange Commission, and they don't trade on major U. The Horizons marijuana ETF has a larger number of individual holdings than Alternative Harvest, numbering close to Among those top holdings are five top cannabis-cultivation stocks, along with one pharmaceutical company and one provider of plant fertilizer products to the industry.
The Top Marijuana ETFs for | The Motley Fool
Many marijuana investors prefer the Horizons ETF's approach to the industry, because its focus is squarely on companies with exposure to the medical marijuana segment. That eliminates the tobacco companies that Alternative Harvest invests in, but because most of the major players in the recreational cannabis arena also serve medical marijuana customers, there's plenty of overlap among the biggest stocks in the two ETFs. Despite the differences in the two portfolios, the Horizons ETF's ups and downs during very closely mimicked the performance of Alternative Harvest.
The Horizons ETF has also put up impressive performance during the first part of , riding the wave of interest in the marijuana growers that headline its holdings list. Marijuana has been a hot area for investors lately, and that's created some dangers for the unwary. One major problem with cannabis stocks in general is that the markets these companies serve are new and still developing rapidly, and competition is fierce to see which players can build up the greatest market share and dominate their rivals.
Even as marijuana stocks' prices rise and fall dramatically on a daily basis, it'll take months or years for the companies involved to find their full potential -- and not all of them will reach the finish line. There's also plenty of room for bad behavior. Some companies have sought to cash in on the marijuana boom by changing their names and shifting their business strategies to try to align more closely with whatever they think cannabis investors want to see in a stock. Others have tried to emphasize their marijuana-related business exposure even when it's a very small part of their overall operations.
Benefits of ETFs
Those pitfalls are fairly easy for investors in individual marijuana stocks to avoid, but when it comes to marijuana ETFs, you have to look a bit more closely. The investment strategies that marijuana ETFs follow are designed to offer exposure to a wide range of stocks involved in the cannabis industry, and they don't necessarily weed out some of the companies that might not pass your own personal smell test when it comes to marijuana investing. Moreover, marijuana ETFs are relatively expensive. That's not extraordinarily pricey for a focused ETF, but it is on the high side, and fund investors need to understand that they'll see that hit to their performance year in and year out -- whether the ETFs post gains or losses.
Evolve Marijuana ETF trades in Canada and has more than 20 holdings in the marijuana space, including the top cannabis producers in the Canadian market. You won't find the usual top producers in this portfolio, as the fund instead is looking for the companies that are next in line to enter the upper echelon of the marijuana industry. However, investors should be wary of investing in this small fund until it gains enough popularity to expand its share base, because ETFs with only a small amount of assets under management can be difficult to trade effectively and can lead to costly mistakes if you're not careful.
Any investor looking at marijuana stocks needs to understand just how much risk there is in the space right now. Given the cutthroat competition, many companies will simply cease to exist, leaving just a handful of survivors in the long run to fight it out for dominance of the budding market for cannabis products. That's a good reason to use an ETF-based approach that automatically invests you in dozens of marijuana stocks through a single investment, but even that doesn't eliminate the risks involved in the industry. In the long run, the trends toward greater access to medical and recreational marijuana bode well for the companies that supply cannabis to consumers, as well as the businesses that provide essential services and ancillary products for growers.
Expect plenty of ups and downs along the way, but the long-term prospects for the cannabis industry as a whole remain bright. Dan Caplinger has been a contract writer for the Motley Fool since As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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Best ETFs: Large-Cap Stocks
Rule Breakers High-growth stocks. View all Motley Fool Services. While they trade on a stock exchange, ETFs can give you exposure to almost any kind of asset. Of course, you can buy funds that invest in stocks, but also bonds, commodities and currencies. You can even find a fund that invests in the volatility of the major indexes. They aim to track the daily performance of their stocks, so if the stocks go up 1 percent, these ETFs are supposed to go up 2 percent or 3 percent, depending on the type of fund.
But they also go down a similar amount, too, if the stocks move that way.
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In addition, leveraged ETFs have other risks that investors should pay attention to, and these are not the best securities for beginning investors. Investors looking for more conservative funds should check out these ETFs.
A passive goal of an ETF is to track the performance of the index that it follows, not beat it. Another huge boon for investors is that brokers are increasingly making ETFs commission-free. That means you can get into and out of the market without paying trading fees, another benefit over individual stocks. Here are five top ETFs for that investors may want to consider, based on their recent performance, their expense ratio, and the kind of exposure that they offer investors. The poor performance in is a reflection of the broader market, not anything specific to the ETF itself.
In , the fund was up nearly 33 percent. This ETF is unusual in the fund world, because it allows investors to profit on the volatility of the market, rather than a specific security. If volatility moves higher, this ETF increases in value.