When it comes to curing common ailments, the majority of doctors won’t be prescribing things like LSD, mescaline, PCP, or psilocybin (mushrooms) anytime soon. But these are examples of a growing billion-dollar psychedelic drugs industry that’s poised for even more growth. And one fund, the AdvisorShares Psychedelics ETF (PSIL), could have investors going crazy over this growth potential.
Various firms offer differing values for just how big the psychedelic drugs industry could get. Research firm KPMG says it could hit $6.8 billion in less than two years, while Data Bridge Market Research says it could cross $7 billion by 2031 and $8.7 billion by 2033, according to Spherical Insights & Consulting. Regardless of the varying forecasts, the bottom line is that the psychedelic drugs industry is big business.
Right now, PSIL is up close to 50%. That sparks curiosity as to what the fund is prescribing to reach its strong performance.
PSIL’s Investment Prescription
The investment case for PSIL is simple. It gives investors exposure to biotech companies whose revenue generation or asset accumulation stems primarily from the psychedelic drugs industry. Currently, its largest allocation is ATAI Life Sciences, which has been getting strong buy ratings from analysts. It could be an ideal fund for those considering to get additional growth exposure outside of typical biotech names like Novo Nordisk, Eli Lilly, or Moderna.
The investment case for the psychedelic drug industry will hinge upon regulation. In the United States, Colorado and Oregon appear to be taking the charge when it comes to crafting regulatory measures surrounding the use of psychedelic drug therapies. Other states are in somewhat of a wait-and-see mode. The federal government has left the decision up to the states on how to regulate the industry. However, they could be watching Colorado and Oregon closely.
“I think these state programs are really going to be used to inform federal policy,” said Ismail Lourido Ali, the interim co-executive director and the head of policy for Multidisciplinary Association of Psychedelic Studies (MAPS).
An Active Prescription
PSIL is actively managed, deriving the inherent benefits of an active strategy. Its portfolio managers can adjust the holdings of the fund to suit current market conditions. They can increase holdings when a certain company is or could move towards the upside or decrease a position in a company to mitigate downside risk.
As PSIL’s product website noted, the psychedelic drugs industry is still in its nascent stages, so having an active management strategy tied to the fund can account for any nuances associated with this specialized space. This means names in the fund could be subjected to higher volatility. Again, the fund’s active management can assist in this regard. In an industry where regulation can make or break certain companies in the space, active management becomes almost imperative.
Nonetheless, PSIL provides an opportunity for investors to add a growth-focused opportunity to their portfolio by way of an easily tradeable, actively managed ETF wrapper.
Thematic Comeback to Benefit PSIL?
This isn’t the first rodeo for AdvisorShares in the active ETF space. The trend is tilting towards active management, with a record number of active launches this year. However, AdvisorShares introduced their first active fund in 2009.
The majority of their funds focus on thematic, which has been seeing a resurgence lately as outlined by Roxanna Islam, head of sector and industry research at VettaFi. AdvisorShares also has funds with equities and multi-asset exposure as part of its lineup. VettaFi senior industry analyst Kirsten Chang noted that midway through the year, active thematic ETFs in particular have been seeing interest, which could bring more attention to PSIL.
PSIL Still Standing
Another benefit of PSIL is its staying power, especially in a competitive ETF landscape that’s hungry for investor capital. Other psychedelics-themed ETFs have fallen to the wayside, like the Horizons Psychedelic Stock Index ETF (PSYK). PSIL been around since 2021. It has managed to maintain its inflows over the last four years, with just over $3 million garnered so far this year.
In 2021, the ETF landscape may have been wondering whether a psychedelics fund could have staying power, or if it was nothing more than a hallucinatory aberration. Thus far, PSIL has proven it to be the former.
For more news, information, and analysis, visit VettaFi | ETF Trends.
