We have seen a lot of wild things occur in 2021, but hey, shouldn’t we have expected that considering it’s the encore act to a truly unforgettable 2020?
With the way big technology stocks such as Apple (APPL), Roku (ROKU), Amazon (AMZN), and Alphabet (GOOG) performed in 2020, one may think these stocks would continue to be big winners during the early part of 2021. Therefore the technology-heavy Exchange Traded Funds would also be the best performers thus far. But that is not the case. Perhaps the Tesla (TSLA) effect on the electric vehicle market would continue to move forward with the Democrats, who are seen as a more environmentally friendly political party in the White and controlling the House and Senate. But that also hasn’t been the case.
The industry that has been on a tear since the start of 2021 is one that a few years ago was coined as “the next great industry,” but that fire quickly smoked out when valuations and expectations grew far too high, way too fast. However, now that the industry is a little more mature developed. Investors have more realistic expectations, combined with the prospects of the industry being able to “legally” operate in more states and countries around the world, and investors really do need to start looking at what it has to offer them and perhaps make an investment in it, before this weed grows high.
If you haven’t guessed yet or scrolled ahead, I am referring to the marijuana industry. I mentioned this industry just a few months ago as one you may want to start watching, and I am reiterating that idea today. While some investors may want to go into this newer industry cherry-picking stocks, I believe the Exchange Traded Funds that focus on this industry are the best way to invest in this growth industry.
Oh, and have I mentioned these marijuana ETFs are the best performing non-leveraged ETFs year-to-date? Let’s take a look at some of them and which ones I personally prefer as an investment option.
The table above is the top 10 best performing non-leveraged and non-inverse ETFs year-to-date. As you can see, 7 of the top 10 are marijuana industry-focused ETFs. This is obviously not a coincidence.
The industry has rallied on the hopes that marijuana will become a legal substance nation-wide in the coming years. We have already seen many States pass laws allowing marijuana to be used for recreational purposes and even more allowing it to be used for medical purposes. The belief is that in a few years, it will be no different than alcohol or tobacco.
Obviously, one would believe that CNBS is the best of the ETFs to invest in, which I wouldn’t argue too hard against. CNBS is a very good actively managed fund, which not all of them are. The fund has an expense ratio of 0.75%, which is very in-line with competitors but only has 22 holdings, something I’m not super excited about. CNBS also has $145 million in assets under management which is a good number for this group.
However, I like YOLO just slightly more than CNBS for a few reasons. It has the same expense ratio of 0.75% but $454 million in assets. It also is actively managed, and while it has performed slightly worse, it is not by much when you look at the 3-year view, 168% return for CNBS and 141% for YOLO. YOLO also carries a larger number of holdings at 30. It has a slightly lower price to earnings ratio of -9.19 compared to -10.74 for CNBS and a slightly higher price to book ratio of 2.40 compared to 2.33 for CNBS. Lastly, its yield is at 0.84% compared to CNBS’s yield of 0.32%.
Clearly, I am nitpicking at the differences between CNBS and YOLO. In reality, either of these ETFs will likely perform very well in the coming years due to the very likely legal changes both in the US and worldwide regarding the marijuana industry and consumption. The truth is, any of the funds mentioned above will probably perform well in the coming years. Still, they are all slightly different, and you should look into them individually to determine which one you are the most comfortable with before buying.
Lastly, you need to remember that just a few years ago, the marijuana industry saw a big run-up as hype for the potential grew, and that scenario could happen again. So before you jump into the deep end with ETFs, consider what “could” happen.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor owned shares of YOLO, CNBS, THCX, MJ, and TOKE at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
