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By Javier Hasse and Eric TerBush.
“This is going to be happening now, it’s going to be happening over the course of the next few years."
These words, said on the day cannabis was legalized in Canada by Evolve ETF’s Chief Investment Officer Elliot Johnson, proved to be almost prophetic. Around the world, cannabis’s legality and profitability have rapidly gained momentum.
Some of those may have gained their wealth through the Evolve Marijuana ETF (TSE:SEED) (OTC: EVVLF), which, in the last year, has delivered the best performance among all cannabis ETFs.
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Interested in learning more about the secret sauce behind the fund’s impressive performance, Benzinga recently sat down with Elliot Johnson and discussed the inception of SEED, how Evolve ETF manages its portfolio, and the importance of being ready, willing and able to respond to price movements.
Evolve ETF’s SEED
Evolve launched SEED on the Toronto Stock Exchange roughly 14 months ago. Since then, its unique management style and performance have accumulated a 33.52% year-to-date return.
“Looking at how to build the product, we first thought about what kind of index we could develop. There was always the question: if we don’t want to go the index route, can we find somebody who’s got a track record in asset management?" said Johnson.
“Of course, it’s a brand-new sector, there’s no such thing as anybody with a track record. The problem with the index was that in an industry with this much volatility, you might end up holding the right things, but you hold them in the wrong weights at the wrong time. That to us seems to be great inefficiency in the index approach.”
Recognizing this, Evolve chose to embrace rapid active management rather than relying on the index approach.
Related: Discussing Canada's New US-Focused Cannabis ETF With Evolve Funds Group
“It is the combination of portfolio construction, fundamental analysis of the names, as well as an overall risk management layer. That is how we’ve done it and it’s how we’ve been able to outperform the Index over the past year,” said Johnson.
“The bottom-line is that we’re not married to a single weight, so it’s not like we comeback in line to a previously set model. If something has moved two standard deviations in a couple of weeks, we want to react to that, because that’s not likely to happen again over the next few weeks.”
SEED’s holdings are broadly-speaking, standard for a cannabis ETF. However, their ability to react and change their holdings is the catalyst for SEED’s performance.