YOLO: August 2019 Portfolio Manager Review
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund’s most recent standardized and month-end performance, please click www.advisorshares.com/fund/yolo.
While some individual securities were showing promising revenue growth and positive earnings, most cannabis stocks were down in August, continuing their summer months struggle. However, I feel it’s time for it to come to an end. As I’m writing this commentary in early September, we’re already seeing a strong rebound. And, at the current lowered prices and more reasonable valuations, I believe we have good reason to be optimistic.
To be successful in this market segment, investors need to be selective and educated in their cannabis investments. Anyone invested in AdvisorShares Pure Cannabis ETF (NYSE Arca: YOLO), or reading this commentary, must be bullish on cannabis for the future.
I strongly believe that YOLO is best positioned for growth if / when cannabis stocks bounce back and grow and here’s why:
• U.S. cannabis exposure
During August, like July, YOLO continued to add to its U.S. cannabis exposure, increasing a number of existing U.S. positions while decreasing overall Canadian holdings. While still growing on a state by state basis, the U.S. cannabis market is many times that of Canada and U.S. multi-state operators (MSO’s) generally trade at more reasonable valuations than their Canadian counterparts. Also, much of Canada has suffered from over-supply while U.S. operators are seeing terrific growth and earnings.
YOLO offers far more U.S. market exposure than any competitor fund. In addition to the six prominent U.S. MSO’s in its portfolio, YOLO holds stocks like Innovative Industrial Properties (NYSE: IIPR), Charlotte’s Web (TSX: CWEB), cbdMD Inc (NYSE: YCBD), Cara Therapeutics (NASDAQ: CARA) and Arena Pharmaceuticals (NASDAQ: ARNA).
In my opinion, it is absolutely outrageous for anyone to be invested in cannabis without serious U.S. cannabis exposure. Investors are kidding themselves if they think are invested in the real cannabis growth opportunity if they’re in fact holding a fund that has almost all its assets in Canadian operators.
• Pure cannabis exposure
Now that there are a few cannabis funds in the marketplace (although some are still tiny and we’re not sure they’ll reach critical mass), its very important to look at a fund’s holdings to know what you’re investing in. YOLO’s fund name is AdvisorShares Pure Cannabis ETF for a reason. All of its constituent companies are primarily in the cannabis business. YOLO doesn’t own tobacco, alcohol, fertilizer, weed-killer, lighting, or drug-testing companies. Competitor cannabis funds own all that other ancillary “stuff”. YOLO is pure cannabis. I do believe in diversification, and investors looking for cannabis overlap and ancillary opportunities should look at YOLO’s sister fund, AdvisorShares Vice ETF (NASDAQ: ACT). However, if you’re investing a portion of your assets for cannabis exposure and expect cannabis stocks to rebound and grow, invest in pure cannabis exposure.
• Active portfolio management
In a fast paced, rapidly changing sector like cannabis, don’t blindly follow a market cap-weighted index. To me, it just seems dumb. In YOLO, we actively choose to underweight (or avoid completely) the largest Canadian cultivation companies that some indexes have as their largest positions. We consciously chose to overweight MSO’s such as Curaleaf (OTC: CURLF – via swap), and other companies, like Village Farms International (NASDAQ: VFF), Innovative Industrial Properties (NYSE: IIPR), Charlotte’s Web (TSX: CWEB), and Organigram Holdings (TSX: OGI). As an actively managed ETF, we can trade at any time we see fit and in a tax efficient manner with care and expertise – as compared to index-following ETF’s that are forced to blindly rebalance on a fixed schedule and size each month or each quarter.
Since its launch on April 18 of this year, YOLO has continued to experience monthly in-flows of new investor, even though cannabis stocks, as a whole, have obviously been down. For the month of August, the Fund returned -12.78% on a market price basis and -12.33% its net asset basis. The S&P 500 Index was also negative at -1.58% for the month.
|Ticker||Security Description||Portfolio Weight %|
|VFF||VILLAGE FARMS INTERNATIONAL||5.49%|
|IIPR||INNOVATIVE INDUSTRIAL PROPER||5.19%|
|CWEB||CHARLOTTES WEB HOLDINGS INC||4.65%|
|CURLF||CURALEAF HOLDINGS INC SWAP REC||4.53%|
|OGI||ORGANIGRAM HOLDINGS INC||4.43%|
|CARA||CARA THERAPEUTICS INC||3.72%|
|ZYNE||ZYNERBA PHARMACEUTICALS INC||3.55%|
|CGC||CANOPY GROWTH CORP||3.47%|
As of 08.31.2019. Cash holdings not included.
During the month of August, we added a new position in Sundial Growers Inc (NASDAQ: SNDL). Their price is down since its recent listing, but they offer a premium product and represent solid value at the current stock price in my opinion.
Please see our complete Fund holdings at https://etf.as/YOLO. The holdings details are updated each market day.
Look for YOLO’s first quarterly dividend distribution to be payable September 30th.
AdvisorShares Pure Cannabis ETF (YOLO) Portfolio Manager
Past Manager Commentary
Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.advisorshares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.
There is no guarantee that the Fund will achieve its investment objective.The Fund is subject to a number of risks that may affect the value of its shares. This section provides additional information about the Fund’s principal risks. The degree to which a risk applies to the Fund varies according to its investment allocation. Each investor should review the complete description of the principal risks before investing in the Fund. As with investing in other securities whose prices increase and decrease in market value, you may lose money by investing in the Fund.
Cannabis-Related Company Risk. Cannabis-related companies are subject to various laws and regulations that may differ at the state/local and federal level. These laws and regulations may (i) significantly affect a cannabis-related company’s ability to secure financing, (ii) impact the market for marijuana industry sales and services, and (iii) set limitations on marijuana use, production, transportation, and storage. Cannabis-related companies may also be required to secure permits and authorizations from government agencies to cultivate or research marijuana. In addition, cannabis-related companies are subject to the risks associated with the greater agricultural industry, including changes to or trends that affect commodity prices, labor costs, weather conditions, and laws and regulations related to environmental protection, health and safety. Cannabis-related companies may also be subject to risks associated with the biotechnology and pharmaceutical industries. These risks include increased government regulation, the use and enforcement of intellectual property rights and patents, technological change and obsolescence, product liability lawsuits, and the risk that research and development may not necessarily lead to commercially successful products.
Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times.
Holdings and allocations are subject to risks and to change.
The views in this commentary are those of the portfolio manager and may not reflect his views on the date this material is distributed or any time thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.