ETF investors with a high risk tolerance are now able to gain leveraged and inverse exposure to the space
Shortly after expanding its cannabis ETF line-up with a US-focused strategy, Horizons ETFs announced two new mandates that allow investors to take riskier positions on the space.
The BetaPro Marijuana Companies 2x Daily Bull ETF (HMJU) and the BetaPro Marijuana Companies Inverse ETF (HMJI) launched on the TSX at the end of May.
“Horizons ETFs has established a leadership position in the Marijuana investing space, and were the first ETF provider in the world to launch a Marijuana-focused ETF, with the Horizons Marijuana Life Sciences Index ETF (HMMJ),” said Horizons ETFs President and CEO Steve Hawkins. “HMJU and HMJI will be the fourth and fifth ETFs we offer that provide exposure to Marijuana equities.”
HMJU is a double ETF, providing leveraged exposure to the North American MOC Marijuana Index. It seeks daily investment results — before fees, expenses, distributions, brokerage commissions and other transaction costs — that endeavour to correspond to two times the performance of the index.
HMJI, meanwhile, is an inverse ETF. The fund seeks daily investment results — also before fees, expenses, distributions, brokerage commissions and other transaction costs — that endeavour to correspond to the inverse of the daily performance of the North American MOC Marijuana Index.
“HMJU and HMJI are higher-risk ETFs that will give Canadian marijuana equity investors the opportunity to potentially generate returns in both positive and negative markets in the Marijuana sector," Hawkins said.
As members of the BetaPro family of funds, HMJU and HMJI have higher levels of leverage and short exposure than the limits prescribed for conventional mutual funds. Focusing on HMJI in particular, the firm noted that the fund blunts the unlimited risk typical in shorting marijuana equities, such that losses in HMJI cannot exceed the principal investment amount; however, it does not eliminate the securities lending costs of shorting such equities, which will be reflected in its performance. Based on existing market conditions, Horizons ETFs anticipates hedging costs charged to HMJI and indirectly borne by unitholders will be between 15% and 35% per annum of the aggregate notional exposure of HMJI's Forward Documents, though the firm will publish an updated hedging cost at the beginning of each month on its website.
“Until now, generating leveraged and inverse exposure to marijuana equities has been difficult and typically requires using a margin account and securities lending facilities,” he said. “HMJU and HMJI streamline this process and allow investors to get leverage and inverse access through diversified ETF exposure to the sector, rather than taking on individual stock risk or having to using a margin account."
The funds also each come with a management fee of 1.45% plus applicable sales taxes, which may seem steep to those more used to the low fees common among more orthodox ETF strategies. According to Hawkins, the double ETF and the inverse ETF were created in response to requests from thousands of investors going back to HMMJ’s introduction in 2017.