By William Davis
If you missed it — and if you’re gainfully employed you probably did — last Thursday was “Weed Day,” or as cannabis aficionados like to call it, uhhh 4/20 man. The term, we’re told, was coined in 1971 by a group of California fast time high school students who would meet at 4:20 p.m. every day after class to smoke pot. For reasons known only to slacker school administrators around the country, the 4/20 movement evolved into an annual occasion for mass stoner bakeouts in leaf-friendly cities like Denver, San Francisco, and Seattle. Totally awesome.
The North American Medical Marijuana Index is designed to provide exposure companies with significant business activities in the marijuana industry
We mention this year’s ganja fest for its rather tasty investment irony. As it turns out, while Spicoli was idly firing up a fattie, Mr. Hand was busy buying up shares of the world’s first-ever medical marijuana ETF. True enough, the Horizons Medical Marijuana Life Sciences ETF, ticker symbol HMMJ (clever) on the Toronto Stock Exchange, drew in a cool 100 million Canadian dollars in its first two weeks of trading. Like totally man, that’s some sweet action.
It’s estimated the cannabis industry had $6 billion of sales in North America last year and another $25 billion in black market business
By all appearance, the hemp ETF is appealing to the non-pothead-crowd with money, i.e., investors, because it offers a toke on the rapidly expanding weed business. Problem is, the little fund is pushing an industry that’s still quite green and made up mostly of sketchy stocks with very small market values. Totally schwag.
The legal grass market could be worth $50 billion by 2026
It’s well known that big flows into ETFs tracking small assets of any strain can make the underlying stocks more volatile as money flows into and out of the product. If HTTJ keeps growing at its current pace, it could become the latest experiment in what happens when a popular ETF is overlaid on a wacky market. Total buzz kill.
What the markets have been doing…
Amid a small and murky drip of first quarter earnings reports, stocks were generally mixed across the period. Boosted by not-awful numbers from Netflix, the NASDAQ and smaller-cap indexes outperformed losing efforts from the bigger-cap benchmarks. Disappointing results from Goldman Sachs, IBM, and Johnson & Johnson weighed heaviest on the narrowly focused Dow Industrial Average.
Uncertainty about tax reform and other economic and political issues also contributed to the market’s mixed results. The Federal Reserve’s Beige Book — a so-called summary of economic conditions — indicated concerns over fiscal policy at the same time it indicated a pattern of solid wage gains. On the positive side, assurances from the Treasury Secretary that the new Administration’s tax reform plans were progressing appeared to drive a late rally.
|INDEX||Friday’s Close||Two-Week Point Change||Year-to-Date Change|
On the fixed income side, Treasury prices stayed in a tight range, with longer-term yields remaining near their five-month lows. Investment-grade corporates also went sideways as traders focused on new issuance, most notably a highly-anticipated batch of U.S. bank issues that just hit the market. The high yield space was quiet, while tax-free bonds benefited from a light new issuance calendar.
|FIXED INCOME||Period||YTD||12 Months||Yield|
|U.S. Investment Grade||-(0.1)%||2.4%||3.7%||3.3%|
|U.S. High Yield||0.0%||3.2%||13.4%||5.8%|
What Fund Architects has been doing…
The post-election rally has clearly faded a bit, and bond yields have more recently declined. This combination of events has sparked concern that we may be entering a period of weaker global economic growth, possibly even an end to the years-long equity bull market. Based on our ongoing analysis of equity and fixed income sectors, we doubt this is the case.
Even with the markets taking a pause to see if the economy and profits can catch up to the latest valuation expansion, we’re still finding attractive investments for the Fund Architect portfolios. On the equity side, we’re seeing good results from our Global Technology and Global Infrastructure selections, while our move to Preferred Stocks has helped us nicely on the fixed income side.
Equity market consolidation and downward pressure on yields may persist for the near-term, and there’s reason to think that volatility will remain relatively elevated. We acknowledge that some downside risks are growing, but also believe that both bond yields and stock prices should climb over the next 6 to 12 months. Most importantly, we expect our systematic and flexible approach to keep finding good investment opportunities in the global market.
What the pundits have been saying…
“The fact that investment grade bonds are rising, while junk bonds are weakening, carries a potentially negative message for stocks.”
What people have been saying…
“We’ll do better than most. We’ll kill all the $100 billion shops down the road in LA. If you have a long-term view, that’s actually a way to cleanse a lot of the weaker guys.”
Manny Roman, chief executive of Pimco, on a potential bear market in bonds
What the numbers are saying…
The amount that Saudi Arabia raised in its first international sale of Islamic bonds, or sukuk, as the kingdom rolls out an ambitious plan to reshape its oil-dependent economy.
The views in this commentary are those of Fund Architects. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from Fund Architects or any other investment professional. The information contained within this commentary should not be the sole determining factor for making investment decisions. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with Fund Architects. Information pertaining to Fund Architects advisory operations, services, and fees is set forth in Fund Architect current disclosure statement, a copy of which is available upon request. Fund Architects, LLC is an SEC Registered Investment Advisory Firm.