UPDATE: An unpopular real estate ETF is remaking itself as a cannabis fund
By Ryan Vlastelica
Such a shift amounts to 'a wolf in sheep's clothing,' analyst warns
An exchange-traded fund has seen strong performance but little adoption this year is giving itself a makeover, and is turning to cannabis to do it.
The Tierra XP Latin America Real Estate ETF (LARE), which, as the name implies, tracks companies involved in Latin America's real-estate market, is filing to change the focus of its holdings. The new focus amounts to a massive overhaul in exposure, strategy, region, and sector: it will now track an index of cannabis companies.
According to an October filing with the Securities and Exchange Commission, the fund, which has traded since 2015, hasn't only decided to change its name, but in an unusual step, also "its underlying index and investment objective."
The new fund, the Alternative Agroscience ETF, is expected to begin trading at some point in December. At that point, it will offer exposure to companies that "are primarily engaged in the legal cultivation of cannabis, or the legal production and distribution of cannabis-related products for medical or non-medical purposes," the filing read. However, the fund "will not include any company that engages in the cultivation, production or distribution of marijuana or products derived from marijuana for medical or non-medical purposes" until it becomes legal under all local and national laws.
It isn't unheard of for a fund to change the benchmark it tracks, but typically such changes are from one index provider to another, with little change in the underlying strategy. In 2012, for example, Vanguard adopted the FTSE Emerging Index for its emerging-market funds, replacing the MSCI Emerging Markets Index. While the two indexes differ in some notable ways (http://www.marketwatch.com/story/the-biggest-emerging-market-etf-doesnt-hold-some-of-the-biggest-em-stocks-2017-05-30), the basic exposure offered is consistent across the two.
A shift like the Tierra fund is gunning to do, where investment thesis changes, is nigh on unprecedented, said Todd Rosenbluth, director of ETF and mutual fund research at CFRA. "Unless investors read SEC filings, they'll wake up one morning and realize they own a completely different product than what they thought."