Horizons Marijuana Life Sciences ETF (TSX:HMMJ) has a collection of the biggest Canadian pot stocks and gives investors an easy way to diversify. With so many different options to invest in and many new pot stocks continuing to pop up, it can be very difficult for a new cannabis investor to decide which stock to invest in. You can go with the big name Canopy Growth Corp (TSX:WEED)(NYSE:CGC) or you could go for a more subtle play like Scotts Miracle Gro-Co (NYSE:SMG). There’s also CannTrust Holdings Inc (TSX:TRST)(NYSE:CTST) which has recently dropped in price and is near a two-month low.
Those are just three different stocks and you could be looking at three different strategies. Each one comes with its own set of advantages and disadvantages. The Life Sciences ETF has all of the aforementioned stocks in its portfolio and also includes other big names like Aphria Inc (TSX:APHA)(NYSE:APHA) and Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) as well.
Over the past 12 months, the Life Sciences ETF has risen by more than 43%. Let’s see how it matches up to the other stocks mentioned here:
Canopy Growth – up 109%
Scotts Miracle Gro – down 3%
CannTrust – up 50%
Aphria – up 24%
Aurora Cannabis – up 47%
Besides Canopy Growth, the Life Sciences ETF wasn’t beaten too badly and even outperformed Aphria and Scotts. However, past performance is no indicator of future success and although Canopy Growth more than doubled in the past year, that may not necessarily happen again. After all, it’s already a pretty expensive stock with a market cap of around $20 billion.
What Does This Tell Us?
With ETFs, generally, you sacrifice yield in exchange for some added safety. And that’s consistent with what we’ve seen here. If you had invested in Canopy Growth you would have been much better off than investing in the Life Sciences ETF. However, that wouldn’t have been the case if you selected Aurora Cannabis instead, which was only slightly better than the ETF.
Over the course of the next 12 months, it could be a different stock entirely that outperforms the ETF. However, this ETF doesn’t contain hundreds of stocks like ETFs in more mature industries do. And so unless there are some wild variations in price, you would expect that the Life Sciences ETF would be inline with the majority of the big marijuana stocks, which is what we’re seeing here.
Since the industry is still a bit young, an ETF like the Life Sciences is going to be less diversified and smaller overall than most other ETFs. As a result, the disparity between it and individual marijuana stocks is going to be smaller. However, that can certainly change over time and by no means is it a guarantee that the holdings today will remain the same. It was recently announced that Westleaf Inc (TSX-V:WL)(OTCQB:WSLFF) was going to be added to the Life Sciences ETF.
Currently, the ETF is heavily weighted towards the big players in the industry but as it gets more diversified its returns will be a bit more modest, but also less volatile as well.