Canada has the reputation for being the first in the financial world for introducing Exchange-Traded Funds (ETFs). The world’s first Bitcoin ETF was also listed on a Canadian stock exchange.
And now, the world’s first ETF for psychedelic-drug companies is the latest of the many firsts introduced by Canada in the financial world.
Psychedelics are a controversial topic, but it is no secret that they are becoming increasingly popular worldwide. A lot more money is being poured into the research of the potential mental health benefits of the drugs.
This Horizons PSYK ETF review will take a closer look at the new fund to help you determine whether it would be a worthwhile investment for you to consider.
Invest In Psychedelic Stocks
Gain relatively safer exposure to the burgeoning psychedelics industry through an ETF that tracks the performance of life science companies involved in the industry.
- Can be used to express a sector view
- Safer exposure to a basket of psychedelics industry companies
- Capitalizes on a growing industry
- First ETF to offer exposure to the nascent psychedelics industry
- Offers geographical diversification
- Does not offer exposure to fixed-income assets
- Only focuses on companies listed on North American exchanges
- High M.E.R
- Unproven industry
What Is PSYK?
The Horizons Psychedelic Stock Index ETF is a financial instrument that launched on the TSX on January 26, 2021, and it is designed to emulate, to the extent possible, the performance of the North American Psychedelics Index, net of expenses.
The underlying index that the fund seeks to replicate focuses on the performance of a basket of publicly traded life sciences companies that have significant business activities in or significant exposure to the psychedelics industry.
Horizons PSYK ETF is available on the NEO Exchange, and it is managed by Horizons ETF Management, one of the most prominent ETF providers in Canada.
Horizons PSYK is a relatively new ETF, capitalizing on the growing psychedelics industry. The net assets held by the fund as of September 3, 2021, stand at $64.74 million. Horizons PSYK ETF is the world’s first ETF to focus on companies with operations related to psychedelic drugs, making it a unique offering by Horizons.
As of writing, it is the only psychedelics ETF listed in Canada and one of the two listed on any exchange worldwide.
Most ETFs tend to diversify their assets across different industries, geographical locations and provide investors with exposure to equity security and fixed-income assets to align with the investment goals defined by the investment firm for the particular funds.
Horizons PSYK ETF offers almost exclusive exposure to the psychedelics industry in North America.
With all of its assets allocated to a limited number of publicly traded companies in the growing psychedelic sector, Horizons PSYK ETF could be considered to express an industry view in North America.
The fund does not provide any exposure to fixed-income assets, making it a relatively risky investment to consider.
Typically, this section of my Horizons PSYK ETF review would discuss the asset allocation split between fixed-income and equity securities that the fund holds. However, Horizons PSYK invests entirely in equity securities, with no exposure to bonds, Guaranteed Income Certificates (GICs), or other fixed-income assets.
Considering that the industry this fund focuses on is relatively new and has a degree of controversy surrounding it, Horizons PSYK ETF could entail mid- to high-capital risk for investors seeking exposure to the psychedelics industry.
On the flip side, the fund’s almost exclusive exposure to companies in the psychedelics business or with significant activities in the space could provide significant upside potential to investors, provided that the industry sees rapid growth in the coming years.
This section of my Horizons PSYK ETF review will cover the top holdings for the fund.
Horizons PSYK invests in several life sciences companies that have significant business operations in or have exposure to the psychedelics industry. The fund allocates much of its total assets with relatively similar weighting to most of its top ten holdings.
However, Horizons PSYK ETF’s allocation to its most significant holding is almost double of its second-most significant holding.
The top holding for the fund, as of August 27, 2021, is Cybin Inc., accounting for 16.01% of its investments. Field Trip Health Ltd. comes in second, accounting for 8.58% of its holdings, and Compass Pathways comes in third, with 8.56% of its assets allocated to the company.
Horizons PSYK ETF MER And Fees
Horizons PSYK ETF is a pricier ETF than many other products with a Management Expense Ratio (MER) of 1.02% (as of June 30, 2021).
The fun’s expenses are significantly lower than mutual fund products available in the country. The typical fee for mutual funds can go higher than 2%. ETFs like Horizons PSYK offering relatively lower MERs is a major reason why many Canadians prefer to invest in ETFs over mutual funds.
This section of my Horizons PSYK ETF review would cover the performance of the asset. However, Horizons PSYK launched only a few months ago at writing, which means that its performance and results are not yet available.
Investors should be able to see its comprehensive data for its performance and returns by January 2022, as the ETF completes a year of trading on the TSX.
The growth of a hypothetical $10,000 invested in the fund shows that since the fund’s inception on January 27, 2021, the value of the $10,000 has declined to around $7,500.
The fund’s performance thus far has been volatile, and it entails significant capital risk. However, it may be too early to determine the long-term potential for the ETF based on the first few months of its inception.
Horizons PSYK Dividend Yield
Horizons PSYK ETF has yet to complete a year of trading. The fund has not yet made any distributions. Horizons ETF Management has not yet provided any details on the distributions that the investors can expect to see from the fund.
There are understandable ethical concerns surrounding investing in an ETF that focuses primarily on publicly traded companies that have significant business activities in, or significant exposure to, the psychedelics industry.
However, the promising research into psychedelics suggests that it has possible applications to improve mental health. Psychedelics are already going mainstream, as the US FDA has also started supporting research on the possible treatments possible with certain psychedelic substances.
Much like how it was with marijuana 10-15 years ago, the psychedelics industry is also surrounded by controversy. Increasing research into the use of cannabis for recreational and medicinal purposes has shed light on the fact that it is, in fact, safe to consume. Marijuana is now available throughout the country.
I don’t mean to imply that psychedelics have been declared completely safe. But there needs to be more research into the industry to determine its possible benefits instead of merely putting everything under an umbrella of dangerous drugs.
The work that many of the companies held within the ETF are focusing on researching the applications and safety of different psychedelic substances. As the industry continues to grow, holding Horizons PSYK ETF might be an ideal way to gain exposure to it.
According to Horizons ETF Management Canada Ltd., the psychedelics industry was valued at approximately US$2 billion. By 2027, it predicts the sector to grow to roughly US$6.8 billion at a CAGR of 16.3%.
The fund focuses on investing in companies researching different psychedelic compounds as potential treatments for mental health issues which include, but are not limited to:
- Drug-resistant depression
- Post-Traumatic Stress Disorder (PTSD)
If deemed effective as a treatment for mental health issues, psychedelics-based treatments could generate over US16 billion in revenues by 2023.
As more research is being conducted on psychedelic substances, the greater level of awareness is slowly chipping away at the stigmatized perception of the substances.
As more and more companies become involved in researching different psychedelics, the industry is becoming more mainstream, but there is still a long way to go for the proper research and safety standards to be put into place.
If you are interested in capitalizing on this trend as an investor, investing in publicly traded companies focusing on the sector will make sense.
Since it’s a relatively new industry, it might make be challenging to determine which equity security can provide you with decent exposure to the psychedelics industry without too much capital risk.
Horizons Psychedelic Stock Index ETF (PSYK) seems that it can offer you exposure to a basket of such stocks without you having to worry about picking individual stocks.
This section of my Horizons PSYK ETF will cover a few financial instruments that you can compare the ETF with. Typically, I would compare the ETF with funds from other ETF providers offering exposure to a similar industry or similar benefits and features.
However, Horizons PSYK is as yet a unique offering in Canada due to its focus on the nascent psychedelics industry.
The Defiance Next Gen Altered Experience ETF (PSY) is the world’s second ETF designed to provide investors with exposure to the psychedelics industry, along with cannabis and other psychedelic-derived treatments. It is the first such ETF offering in the US, and it does not trade on any Canadian exchange.
PSY ETF focuses on a broader range of equity securities than Horizons PSYK ETF. It began trading on the New York Stock Exchange (NYSE) on May 28, 2021 and offers a lower 0.75% MER. Many PSY ETF’s top holdings are similar to PSYK ETF, but the fund’s focus on psychedelic companies is not as significant as PSYK ETF.
Horizons HMMJ ETF is another fund provided by Horizons ETF Management Canada. This fund seeks to replicate, to the extent possible, the performance of the North American Marijuana Index, net of expenses.
The constituent companies in the index consist of life sciences companies with significant business activities in the marijuana sector.
Horizons HMMJ ETF has been trading on the Toronto Stock Exchange (TSX) since April 2017, and it comes with a lower 0.85% MER compared to Horizons PSYK ETF, but it focuses on a different industry.
Horizons HMJR ETF is another fund provided by Horizons ETF Management Canada. The fund trades the NEO Exchange like Horizons PSYK ETF. It began trading in February 2018 and comes with a management fee of 0.85%. The investment firm has not highlighted the fund’s MER as of writing.
HMJR ETF seeks to replicate, to the extent possible, the performance of the Emerging Marijuana Growers Index, net of expenses.
The Index is designed to offer exposure to the performance of a basket of small market capitalization and publicly listed North American companies primarily involved in cultivating, producing, or distributing marijuana.
|Wealthsimple Trade||Get $50 Signup Bonus|
|Questrade||Get $50 Free Stock Trades|
To learn more, check out my full breakdown of the best trading platforms in Canada here.
A lot remains to be seen regarding Horizons PSYK and the broader psychedelics industry to determine where it is going. Horizons PSYK ETF is a speculative investment to consider at this point.
It has not even been a year since the fund’s inception at writing, so there is little data on the fund’s performance to determine whether it is a good investment purely from the financial aspect.
The ETF is also slightly expensive due to its high management fee and MER. I would categorize it as at least a medium-risk investment.
If you are interested in capitalizing on the growth of the psychedelics industry, buying and holding an ETF that diversifies across several companies in the sector might provide you with safer exposure to it than holding individual stocks.
I will conclude my Horizons PSYK ETF review by saying that it is a fund you should have on your radar, even if you are not investing in it right away.
If you want to invest in a high-growth sector without worrying about ethical concerns, the Canadian tech sector has plenty of ETFs to offer. Check out my list of the best tech ETFs in Canada to learn how to gain low-cost exposure to a basket of tech stocks.