So, back to the original point of this ETF not being a new fund. ETFMG, the issuer of the fund, is actually taking an old ETF and transforming it into the new Marijuana ETF. Sound confusing? Let me explain. The Tierra XP Latin America Real Estate ETF (NYSEARCA: LARE) is essentially being taken out behind the woodshed and put to rest. ETFMG is essentially taking the fund, changing its benchmark index and its objective, and rebranding it as a new fund. Yes, an ETF issuer can do this. In fact, ETFMG did it just earlier this year when it kicked PureFunds to the curb as the index provider for a number of its funds.
There are two questions that need to be answered here. First, why is the fund changing its focus from Latin American real estate to marijuana? Second, why is ETFMG rebranding an existing fund instead of just launching a new one?
The first question is fairly easy to answer. It’s for the reasons already mentioned above. The marijuana industry is hot and there isn’t currently an ETF that focuses on it. ETFMG is hoping for a first-mover advantage and is looking to replicate the success that the Horizons ETF is enjoying. The second question is a little trickier. Sometimes, for any number of reasons, a new ETF just doesn’t catch on.
With LARE, performance hasn’t been an issue (it’s up a total of 36% since its inception in late 2015). Despite the solid results, the fund just hasn’t been able to gain traction. With just $6 million in assets, ETFMG decided it wasn’t going to be a viable product and made the choice to move on. But launching a new fund is expensive. What’s much cheaper is to just change the index and investment objective on an existing fund. And don’t ignore the other added bonus that ETFMG can keep the fund’s track record. It can still advertise that the fund has returned 36% since inception, even though that return was achieved targeting a segment of the market completely different than the one it’s currently targeting.
It’s understandable why ETFMG would try to strike while the iron is hot, but still it’s an unfortunate end for an ETF that actually did pretty well.
For more information on the ETF industry, visit our ETF performance reports category.