Redwood Asset Management portfolio manager on why active approach to volatile space will reap rewards
In a nod to more traditional portfolio management, Redwood Asset Management launches Canada’s first active marijuana ETF tomorrow.
The Marijuana Opportunities Fund will avoid the US until further clarification is provided about its regulations but will target companies that have international credibility. Big names, like Canopy Growth and Aphria, will feature.
Greg Taylor, portfolio manager at Redwood Asset Management, a subsidiary of Purpose Investments Inc., believes the active approach will reap rewards in such a volatile sector, providing daily opportunities to trade around positions and add value through strategy.
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He also thinks it’s an ideal time to establish the fund, with Canada fast becoming the world leader in the industry.
He said: “We’ve got a two or three-year head start on a lot of countries and a lot of the companies coming out of Canada have big plants internationally and I think that’s caught a lot of people’s attention.
“There’s not many chances where a Canadian industry is going to dominate and shape the world view, especially when you don’t have the Americans in the space because they are kind of shut out of the market right now.
“So that’s got everyone looking at our sector and I think it’s been really dominated by the retail investor. A few institutions have just ignored the space and sat it out. So it’s really got this unique experience where the sector right now is really dominated by passive ETFs, given the HMMJ, or just retail investors buying up names that they’ve heard about. And I think that leaves it open to a more institutional-style active approach to the sector and I think in the ETF form that could be a good advantage.”
Taylor says another selling point in the fund is that Redwood will not shy away from stepping back if things go “parabolic”. Rather than quarterly decisions on what to buy or hold, the portfolio will be looked at every day.
He said: “This is going back to good old-fashioned fundamental analysis, trading pitches and looking at technicals and trading around core positions; stuff that active manages used to do in all sectors.
“I think there’s going to be big winners coming out of this space. And to me, these companies have to be really low cost, have a high valued-added solution or have a really great international strategy, and I think more often than not, what’s going to win from those will be international strategy.
“So I am going to be looking at companies, trying to find ones that are going to win overseas because I think with this head start, it’s going to be Canadian companies getting in the door in these spaces and potentially having some opportunities to build international brands.”
Companies shouting “look at me” but with no expertise do not interest Taylor, who wants companies going international into markets that have already proven themselves with medical marijuana and are looking for help to build up their industry. Germany and Australia are currently much-talked about markets.
He said: “One thing we are going to do as we are coming out right now is to avoid the US, given some of the headlines around US exposure and some of the instances of how Canadian companies operating in the US are going to be treated. To be safe, we are going to stay away from those stocks until we get further clarity from the regulators, so we are going to try to take a more conservative approach to that.”
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