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Vice And Cannabis Are In With This ETF

March 27, 2019 8:11 am
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There's just one exchange traded fund in the United States dedicated to cannabis stocks — the ETFMG Alternative Harvest ETF (NYSE:MJ) — leaving a void for investors looking to use the ETF wrapper for marijuana equity exposure.

There are alternatives for ETF investors looking for some cannabis exposure, but not with an “all-in” type of vehicle.

What Happened

The AdvisorShares Vice ETF (NASDAQ:ACT) is an avenue for investors to get some exposure to marijuana stocks while diversifying across some other industries. Actively managed, ACT debuted in December 2017.

ACT's management team “believes that investing in select alcohol and tobacco companies will provide continued growth and long-term performance across all types of market environments,” according to AdvisorShares. “With evolving societal and regulatory landscapes, the upside potential of cannabis as a new investment avenue has emerged to complement the historically resilient characteristics of alcohol and tobacco.”

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Why It's Important

While its year-to-date returns are well behind those of the dedicated cannabis ETF, ACT is up an admirable 18.36 percent this year. ACT usually holds around 50 or fewer stocks with about a quarter of its weight allocated to dedicated to cannabis companies.

The rest of the fund is allocated to alcohol and tobacco companies, most of which reside in the consumer staples sector. Exposure to defensive consumer staples helps ACT reduce some of the volatility associated with dedicated cannabis investments. Additionally, consumer staples stocks are often prized for dividends. To that point, ACT yields 1.46 percent. While that may not sound like much, it is well above the dividend yield on many cannabis stocks and ETFs.

“The largest alcohol and tobacco companies are among the equity market's top dividend payers, exhibiting an attractive history of consistent growth and increasing dividends that can enhance the portfolio's total return,” according to AdvisorShares.

What's Next

While ACT is not a dedicated cannabis ETF, another benefit of the fund for investors looking to wade into the marijuana is that major alcohol and tobacco companies are partnering with cannabis companies. Altria Group Inc. (NYSE:MO) and Constellation Brands, Inc. (NYSE:STZ) are two examples of that trend.

For now, ACT is a viable alternative for investors wanting to nibble at the cannabis space and it's probably the second-best option in the domestic ETF space for aggressive marijuana investors.

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