Pot ETFs Looking Less and Less Like Smoke-and-Mirrors Plays

The cannabis industry has become a relatively steady performer in the capital markets with more years under its belt. The sector is proving it’s not a thematic smoke-and-mirrors play with strong outperformers like the Global X Cannabis ETF (POTX).

The fund is even outdoing those that are actively managed, according to a recent Forbes article. POTX was picked as one of the best ETFs to get exposure to the industry, given its low expense ratio relative to its performance.

In the meantime, the growth component of the cannabis industry is still alive and well.

“With the growing acceptance of cannabis among American consumers and their elected representatives, this edgy asset class offers your portfolio an excellent source of growth. According to data from Leafy, an online marijuana marketplace, legal U.S. cannabis sales—medicinal and recreational—increased 71% in 2020, to a total of $18.3 billion,” the Forbes report said.

POTX seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Cannabis Index. The fund invests at least 80% of its total assets in the securities of the underlying index and in American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) based on the securities in the underlying index.

The underlying index is designed to provide exposure to exchange-listed companies that are active in the cannabis industry, as defined by Solactive AG, the provider of the underlying index. With an expense ratio of 0.51%, POTX is 13 basis points below the category average.

POTX Chart

Passive in Nature, Active in Gains

As noted in the previous chart, the fund is up a smidge over 30% for the year. In addition, it’s up over 40% within the last 12 months.

While POTX doesn’t utilize a dynamic strategy of getting in and out of positions to flex with the shifting markets, it’s still a strong performer. Tilray Inc, which comprises 16% of the fund, is up over 100% for the year.

“This passively managed fund outperforms many of the actively managed funds above, making the combination of a lower expense ratio, better performance and a rare dividend yield of roughly $0.14 per share, as of writing, an attractive prospect for those looking to tap into cannabis sector growth,” the Forbes article added.

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