The cannabis sector has taken a beating since CannTrust (TSX:TRST) was exposed for its damaging oversight. Cannabis stocks had been in a broad and steady decline since the middle of April, which may not have come as a surprise considering the hot start to the year.
The sector has always been volatile, but is a broad-based approach even viable for investors right now?
The Horizons Marijuana Life Sciences ETF (TSX:HMMJ) has dropped 19% over the past three months. The usual suspects make up its top holdings. Canopy Growth (TSX:WEED) and Aurora Cannabis (TSX:ACB) are both weighted over 10% each, with Cronos (TSX:CRON), Tilray, and GW Pharmaceuticals rounding out the top five.
The fund shed 19% of its value in 2018 and has returned 19% back to shareholders so far this year. Growth investors aren’t in the game to break even, so HMMJ’s performance has been a disappointment over the last two years.
Is there reason for optimism going forward? The ETF is now trading at the low end of its 52-week range. Investors who are on the hunt for big growth should be more selective in this sector.
An ETF-focused approach is not going to produce the kind of returns we have seen before 2018. The ETF had an RSI of 30 as of close on July 23, which puts it just outside of technically oversold territory.
To reiterate; I’m staying away from cannabis ETFs for the remainder of 2019. I am more inclined to target individual equities that offer a higher upside in this sector.
