The actively managed Evolve Marijuana Fund (TSX: SEED) has significantly outperformed its passively managed counterparts, as well as the marijuana benchmark index.

When it comes to investing in the cannabis industry, active management has many distinct advantages over passive management.

While a passive index provides investors with broad exposure to the market, the underlying truth is that active managers have the flexibility to make investment decisions, compared to passive managers who are restricted to investing in a benchmark index over which they have no control over stock selection.

This is particularly true in the rapidly emerging cannabis sector in which market moving events unfold rapidly as they are driven by news, corporate announcements, mergers and acquisitions as well as other unanticipated developments in a continuously evolving regulatory environment.

Active Managers Can Take Defensive Action in an Emerging Cannabis Industry

Though growing rapidly, the relatively immature cannabis sector can be susceptible to a higher degree of uncertainty in comparison to more mature segments of the market.

As a result, active managers in the sector can take defensive action and sell the stocks of troubled companies or make changes to their portfolio in the wake of volatility or if they believe the market may decline. It’s important to note that passive managers do not have the same degree of flexibility.

In fact, passive managers can be held hostage to the fortunes of troubled companies that are part of a benchmark index, even if they foresee those troubles ahead of time. Therefore, passive managers may have to endure index volatility to the detriment of investors, whereas active managers can make tactical shifts in asset allocation.

Markets Are Not Always Efficient

Passive managers argue that the markets are efficient and that it is difficult to outperform an index. On the other hand, active managers believe that the markets possess mispricing opportunities which can be leveraged to outperform the index. These opportunities can be leveraged by active managers who have the skills and experience to analyze individual securities when making their investment decisions.

Fees and Costs Vary

One of the biggest arguments against active management is the higher fees associated with it. While true, it must be noted that fees and expenses vary widely for both active and passive management. At the end of the day, investors need to look at the returns they receive relative to the fees they pay. When investing in emerging sectors like cannabis, active managers can find “diamonds in the rough” that can provide strong returns. Conversely, the performance of passive managers is dictated by the index.
We believe that generating superior risk-adjusted returns will come down to picking the right stocks in the cannabis sector. Capitalizing on such opportunities can only be achieved through active management.

Winning with Evolve’s Actively Managed Cannabis ETF – Evolve Marijuana Fund (TSX: SEED)

The experienced management team of Evolve ETFs believes that the dispersion in returns between cannabis companies that succeed and those that do not at any point of time is very wide. The firm’s active management approach includes re-thinking the portfolio whenever deemed necessary. This involves making tactical portfolio shifts whenever the market warrants.

The firm employs an investment process that combines quantitative techniques, fundamental analysis and risk management in managing its cannabis portfolios.

The Evolve Marijuana Fund (TSX: SEED) has Significantly Outperformed its Passively Managed Counterparts, as well as the Marijuana Benchmark Index

According to the Bloomberg classification of 491 TSX-listed equity ETFs, the Evolve Marijuana Fund (TSX: SEED) has remained the top performing TSX-listed equity ETF over the past one year1 since February 28, 2019. SEED has also more than doubled the performance of the North American Marijuana Index as of April 30, 2019.

Annual Total Returns3 (as at April 30, 2019)

Ticker

Evolve ETF & Index

1 Year

Since Inception2

SEED

Evolve Marijuana Fund

71.37%

44.85%

NAMMAR

North American Marijuana Index

35.15%

18.85%

Source: Bloomberg, as at April 30, 2019.

Introducing the World’s First ETF Investing in the U.S. Cannabis Industry – Evolve U.S. Marijuana ETF (NEO: USMJ)

The new Evolve U.S. Marijuana ETF (NEO: USMJ), launched on April 17, 2019, is also actively managed. It may invest in equity securities of companies listed domestically and globally, and other companies, with business activities in the U.S. recreational and/or medical marijuana industry. USMJ is denominated in Canadian dollars and incorporates a dynamic foreign-exchange strategy to hedge back to the Canadian dollar, at the discretion of Evolve ETFs.

About Evolve ETFs

With assets under management of over $475 million, Evolve is Canada’s fastest-growing ETF provider since launching its first suite of ETFs on September 20, 2017.  As a leader in thematic ETFs, Evolve specializes in bringing innovative ETFs to Canadian investors. Evolve’s suite of ETFs provide investors with access to (i) long term investment themes, (ii) index-based income strategies, and (iii) some of the world’s leading investment managers.  Established by a team of industry veterans with a proven track record of success, we create investment products that make a difference.

Click here for more information about the Evolve Marijuana Fund (TSX: SEED) and the Evolve U.S. Marijuana ETF (NEO: USMJ).

Visit the Evolve ETFs website to learn more or contact us today.

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1 Based on the Bloomberg classification of 491 TSX-listed equity ETFs, as at April 30, 2019.

2 Performance since inception of SEED on February 12, 2018, as at April 30, 2019.

3 The rates of return shown in the table are used only to illustrate the effect of the compound growth rate and are not intended to reflect future values of the ETF or returns on investment in the ETF. Total return performance calculations reflect performance from April 30, 2018 to April 30, 2019 on a trailing basis and are subject to change daily.

Commissions, trailing commissions, management fees and expenses all may be associated with exchange-traded funds (ETFs). Please read the prospectus before investing. The indicated rate of return is the historical annual compounded total return including changes in per unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

 

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