We chose an active approach for the cannabis sector because it is such a news driven, volatile industry. It’s not uncommon for the price of a cannabis stock to move by 10% or more in a single day. In those circumstances we believe it’s particularly important to be reacting to changes in the market to ensure appropriate portfolio construction is maintained at all times.
The problem with a passive, index approach to a volatile sector is that you end up holding the wrong things in the wrong amounts at the wrong time because an index will only rebalance a few times a year and will not take into account market conditions when it does so. This can exacerbate the volatility of your investment.
Sometimes volatility and news can coincide to provide wonderful opportunities as we saw in Canada last fall in the run up to cannabis legalization on October 17th. We were well positioned to take advantage of that rally and to take risk off the table when prices ran too far, too fast.
We’re on the lookout for similar opportunities as the cannabis industry in Canada continues to develop with the introduction of edible formats this fall and the global expansion of Canadian companies into new markets.
With the right approach a volatile sector can actually benefit investors and that’s what we are trying to do with these products.
Elliot, can you tell me about the commonalities and the difference in your management process for these two funds?
We follow the same process for both SEED and USMJ. The difference between the two funds is simply where the companies operate: for SEED we exclude companies operating in the USA, but for USMJ we only look at companies operating south of the border.
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