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Amazing, the securities lending income on HMMJ has gone up further. The ETF now yields 7% to 8% due to the revenue HMMJ is able to make by lending out its shares to short sellers. Bloomberg is running this article on the intense demand to short TLRY which has driven the borrowing cost up up 900% APR.
https://www.bloomberg.com/news/articles/2019-01-09/want-to-short-tilray-get-ready-to-pay-900-for-the-privilege?srnd=premium-canada

It's this kind of insane desire to short the shares that lets HMMJ earn revenue by lending the shares of TLRY and others. I'm not aware of any other ETF that has all of its yield (not actually a dividend) coming from securities lending revenue!
I'm a little lost on the impact of this? What are the risks to the ETF associated with securities lending? I get that the income stream has far outpaced the dividend stream from the underlying holdings, but is that really surprising? I wouldn't expect growth stocks in the Marijuana sector to be paying any dividends right now. And looking at the Q2 2018 statements, securities on loan only represents 0.5% of the ETFs total assets.

Does securities lending by itself present any risk to the stability or risk of the ETF? This arrangement seems somewhat akin to how BMO has defensive ETFs that sell options to produce a stream of income to supplement the ETFs dividends from the underlying holdings.

I do hold a small position in HMMJ so I am genuinely curious to know if I am missing something.
 

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Discussion Starter #184
I'm a little lost on the impact of this? What are the risks to the ETF associated with securities lending? I get that the income stream has far outpaced the dividend stream from the underlying holdings, but is that really surprising? I wouldn't expect growth stocks in the Marijuana sector to be paying any dividends right now. And looking at the Q2 2018 statements, securities on loan only represents 0.5% of the ETFs total assets.

Does securities lending by itself present any risk to the stability or risk of the ETF? This arrangement seems somewhat akin to how BMO has defensive ETFs that sell options to produce a stream of income to supplement the ETFs dividends from the underlying holdings.
When an ETF (or mutual fund) lends out securities, it receives cash collateral in response. There is a bit of risk because the borrower could default and not return the securities. In that situation the fund still has the cash collateral, but might miss out on price increases if those securities gain value in the mean time.

That being said, I think the risk of the pot stocks themselves far exceeds the risk of the securities lending. So I wouldn't be concerned about the securities lending here. On top of them, the lender (you) is getting very well compensated for the lending action.

All mutual funds lend out securities, but the kind of stocks HMMJ lends out are extremely desirable right now so the compensation is huge... which gets delivered to you via the massive HMMJ dividend. I don't think there's any reason to worry about their lending activity. This looks like a sweet situation for people who are willing to invest in pot stocks. If you held the stocks individually, you wouldn't get compensated for the lending. Doing it via HMMJ gets you this additional benefit.
 

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When an ETF (or mutual fund) lends out securities, it receives cash collateral in response. There is a bit of risk because the borrower could default and not return the securities. In that situation the fund still has the cash collateral, but might miss out on price increases if those securities gain value in the mean time.

That being said, I think the risk of the pot stocks themselves far exceeds the risk of the securities lending. So I wouldn't be concerned about the securities lending here. On top of them, the lender (you) is getting very well compensated for the lending action.

All mutual funds lend out securities, but the kind of stocks HMMJ lends out are extremely desirable right now so the compensation is huge... which gets delivered to you via the massive HMMJ dividend. I don't think there's any reason to worry about their lending activity. This looks like a sweet situation for people who are willing to invest in pot stocks. If you held the stocks individually, you wouldn't get compensated for the lending. Doing it via HMMJ gets you this additional benefit.
Sounds good, thanks for the feedback

I understand the risk of the pot stocks themselves which is why I’ve limited my position to no more than 2% of my portfolio (right now it’s closer to 1.5%)

But this securities lending thing was new to me.
 

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Discussion Starter #186 (Edited)
One of my friends had a speculative position in HMMJ. I had suggested it to her initially as a lottery ticket (in parallel to my posts in this thread), she got in at a great price and I recently recommended that she sell and take home the profits. She's sold it now for about 100% gain. I told her that I don't think the sector is showing the kind of movement that would justify staying in. Net assets of HMMJ seem to have topped out, meaning money has stopped flowing in rapidly (for now). There was a time when hundreds of millions of $ was flowing into this but I was always watching these money flows, trying to see whether it continued, or tapered off.

For now, it seems to have attracted as much speculative money as it's going to, and reached a waiting state. Doubling your money on a lottery ticket like this is pretty good, but I wouldn't dream of buying in now. Not unless the companies started demonstrating great results and justifying their share prices.

The securities lending and huge distribution (not a dividend) was a nice freebie for HMMJ holders that I didn't see coming. That boosted the returns substantially, just a happy side effect of how Horizons structured this, plus Horizons' generosity in distributing the income to shareholders. This is actually really impressive of them because they probably could have kept the securities lending income for themselves instead of sharing it with unit holders.
 

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Discussion Starter #187 (Edited)
The sector has been steadily weakening since I suggested my friend sell HMMJ and lock in the gains. Also look at the volume on HMMJ, it's basically gone.

I interpret that as a sign that investment hype and general enthusiasm has disappeared from this bubble. New money has stopped flowing in, and the sector has been sideways (going nowhere) since early 2018 as shown here: http://schrts.co/fpQpCVbv

I'm tempted to say that this party is over with peak prices occurring back in October 2018... but it's always hard to predict when bubbles end. I also think the pot bubble is linked to the bitcoin bubble, as both were popular with novice retail investors who were first time investors. For both, the big run-up was in 2017 and then both have gone nowhere since Jan 2018.

I think there's an underlying phenomenon that has been feeding both pot stocks & bitcoin: new, amateur investors who had excess money for the first time, emboldened by generally positive market conditions and central bank stimulus, little appreciation for risk, lots of greed. When a general bull market goes on for long enough, eventually you get some bubbly pockets emerging.

And Wall Street and Bay Street are always skilful in exploiting those retail bubbles, taking money out of the hands of new investors. Bull markets and central bank stimulus are always very good for the capital markets industry... they absolutely love this kind of stuff.

If the general bull market and central bank stimulus continues, and if markets continue to look riskless, I could see bitcoin & pot stocks come roaring back too.
 

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it's true weed stocks are hyper volatile but i don't see the now-slipping range down from recent frothy peaks as being "stupid."

MJ has been a leader export among canadian ag products for decades. Stats are not reliable but they say MJ export has always been worth more in $$ than wheat export. Now that many producers are legal, it's finally possible to know something about their earnings.

meanwhile more & more US states are opening up, first to medical use, then to recreational use. Sooner or later the US feds are going to legalize recreational. Even if later, it all bodes reasonably well for canadian producers.
 

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i doubt ottawa overlooked anything

the 1763 treaty of paris, which ended the 7 years' war in europe & delivered eastern canada to the british instead of the french, did include some clauses regarding how indigenous nations were to be treated by the conquerors.

particularly, trading nations were to be allowed free access back & forth across the borders of upper & lower canada & the 13 british colonies (later to become the US of A) to the south.

specifically the treaty said that indigenous peoples were free to cross borders "without let or hindrance."

furthermore indigenous peoples had the right to cross carrying not only their personal effects, but also "goods in bales," the treaty said.

arguments about what constitutes "goods in bales" have abounded ever since. The expression was thought to recognize the livelihood of the Mohawk nation, who were - & remain - primarily a trading nation.

time & again, lawyers for mohawk traders have invoked the "goods in bales" provisions to protect mohawk traders bringing all kinds of goods into canada, including the infamous cigarette & liquor products that are custom manufactured for indigenous export on the US side of the border.

Tyendinaga is an ontario mohawk reserve. It falls under the protection of the "goods in bales" exemption.

most goods for sale on mohawk reserves are exempt from both customs duties if they are imported & also from federal & provincial sales taxes, no matter the provenance. There are plenty of non-natives who shop on reserves for exactly that reason. They're buying far more than just cigarettes & alcohol or - lately - weed.

then there are the hundreds upon hundreds of online gambling casinos all managed by one large computer park in kahnewake, a mohawk reserve across the st-lawrence river from montreal. It's said to be the world's biggest assembly of virtual gaming.

ottawa & the provincial gummints have known about all of the ^^ above for many years, indeed decades. The RCMP, the Surete du Quebec & the Ontario Provincial Police know about all of the ^^ above. There's no way ottawa overlooked any of the ^^ above.
 

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Thanks for the history lesson Humble, not that any of it was news to me.
You seem to think I have an issue with our enterprising indigenous - but I don't.
My point was that the government should have simpy legalized pot, period. Instead they decided to try to regulate its growing and sale, and surprise, surprise - tax it.
Meanwhile, on the black market and the res you can buy it for 1/3 to 1/2 the 'legal' price.
No, this was an epic fail by Trudeau and the Liberal government.
 

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You seem to think I have an issue with our enterprising indigenous - but I don't.
My point was that the government should have simpy legalized pot, period. Instead they decided to try to regulate its growing and sale, and surprise, surprise - tax it.
Meanwhile, on the black market and the res you can buy it for 1/3 to 1/2 the 'legal' price.
No, this was an epic fail by Trudeau and the Liberal government.

in post 189 you stated that you do have an issue with cannabis sales on reserves. In fact you said these are "the next big pot issue" which "the Libs seem to have missed."

my view is the opposite of yours. My view is that pot sales on reserves are very well-known to every level of government, as are the sales of all kinds of gray market product that take place year-round on some reserves. Further, my view is that such sales have been well known for decades. They are something of a yawn.

they're known to conservative federal leaders, they're known to liberal federal leaders, they're known to provincial governments of every political stripe.

why would you suddenly be trying to twist this into another attack on the current Liberal government?

it looks far-fetched to me. About as far-fetched as making rude remarks about corn flakes.

.
 

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Discussion Starter #193
The sector has been steadily weakening since I suggested my friend sell HMMJ and lock in the gains. Also look at the volume on HMMJ, it's basically gone.

I interpret that as a sign that investment hype and general enthusiasm has disappeared from this bubble. New money has stopped flowing in, and the sector has been sideways (going nowhere) since early 2018 as shown here: http://schrts.co/fpQpCVbv

I'm tempted to say that this party is over with peak prices occurring back in October 2018... but it's always hard to predict when bubbles end. I also think the pot bubble is linked to the bitcoin bubble, as both were popular with novice retail investors who were first time investors. For both, the big run-up was in 2017 and then both have gone nowhere since Jan 2018.
I posted that on 2019-07-29 and I think it increasingly looks like the party has ended. HMMJ is down 30% since that point and you don't hear many greedy observations about pot stocks any more. The last time I remember hearing pot stock excitement was about TLRY in late 2018. (That stock is now down 90% since its peak)

This was a neat little case study in bubbles. Here's the HMMJ chart since inception in 2017: http://schrts.co/sRDzIyRX

Even if someone identified the "hot theme" early enough, I see only about 12 months where someone could have traded it long. That's just not a very large time window to get in & out.

Most people got in too late. Look at the volume on HMMJ for an indication of popularity; the volume really hit around the start of 2018, when Bay Street and Wall Street started making a big deal of all this. Using HMMJ as a proxy for pot investment, that means most of the public got in around the $16 to $21 mark -- way too late.

As you can see from this thread history, 2019-04-05 is when I suggested that my friend sells their position and gets out. I told her that the sector isn't showing the kind of oomph that justifies staying in. She had actually doubled her money at that point; really proud of myself for helping her get out right near the peak.
https://www.canadianmoneyforum.com/showthread.php/112713-Marijuana-ETF-HMMJ?p=2011278&viewfull=1#post2011278

Early in this bubble I was hoping that it would run much longer, maybe a multi-year, insane bubble. But I think it fizzled out.
 

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Discussion Starter #194
Even thought this is a bad sector to invest in, I wanted to point to this enormous distribution yield.

HMMJ shows a quarterly distribution of roughly 0.25 a share. I think that's about 10% yield on HMMJ.

These distributions being paid are the securities lending revenue provided by the short sellers who are shorting the living daylights out of pot stocks!

Though I would never buy any of these, I think it's noteworthy that anyone who wants to hold marijuana stocks is better off using HMMJ than the individual stocks. If you hold the stocks at your brokerage, your broker will lend out the shares to the short sellers, but compensate you with nothing. The broker keeps the securities lending revenue.

But if you hold HMMJ instead, Horizons will pass that revenue on to you. And it's pretty substantial right now.

OTOH this means very little in reality because (assuming a somewhat efficient market), the level of short selling and resulting securities lending revenue is going to match up with the risk of investing in the sector. If the prices reach a bottom and stabilize, making the sector more viable, the short selling (and this yield) would subside.
 

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^ What about the possibility of a distribution cut?
There is no such thing as an ETF distribution cut. Distributions vary on a regular basis as cash moves through an ETF. No holder of an ETF should ever assume distributions are constant, albeit bond ETFs tend to have less variability in distributions and any that return capital as part of their design.
 

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Discussion Starter #197
There is no such thing as an ETF distribution cut. Distributions vary on a regular basis as cash moves through an ETF. No holder of an ETF should ever assume distributions are constant, albeit bond ETFs tend to have less variability in distributions and any that return capital as part of their design.
Unfortunately people do make assumptions about distributions paid out by funds. A good example of this was XTR, which was actually the first diversified balanced fund ETF in Canada that came long before VBAL. This is after the income trust days; they turned XTR into a 60/40 fund of general equities + bonds.

XTR was designed to pay out regular 'monthly income' so it got people used to the idea of a steady X cents each month. Later, when their underlying couldn't keep up with it, iShares cut the distribution. I'm sure many seniors who had come to expect the regular income were not happy about this.

The same thing happened with many "monthly income" mutual funds, when interest rates began to plummet. A good reason to take the total return view of investing instead of becoming dependent on an expectation of distribution regularity.
 

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Discussion Starter #199
^ So what's the point of your post #194? I'm getting conflicting messages within that post.
My points were:

1. it's interesting that the high distribution comes from securities lending revenue. This is unique in the whole ETF industry, I've never seen a 10% yield due to securities lending anywhere else. In other words, it's a first. This is an observation about something unusual and novel happening.

2. due to this, someone who likes MJ stocks (I don't!!) is likely better off holding the ETF. It will give them a performance boost versus holding the stocks individually, due to this securities lending revenue. As long as it continues, anyway.


I don't hold any pot stocks and would discourage anyone from buying them. But if someone really wants to invest in them, it seems to me they are better off in HMMJ to at least get this revenue from short sellers.
 

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My view....

1. The cannabis sector is way too immature to take speculative bets on any single company. The winners are not known in advance
2. The cannabis 'demand' market is about to materialize with the opening of more stores (no one forecasted how inept and incompetent BC and ON would be in licensing retail outlets), and the introduction of edibles.
3. HMMJ is now below the low end of my forecast of $10-12 made circa 12-18? months ago and may be bottoming within 4 weeks, if for nothing else than tax loss selling season. Maybe $8? or $7?
4. One is sort of being paid to wait....for now with the high yield...while it lasts. If James' comment is true, shorting will disappear by mid-2020 and yield will fall off in a big way.

Added... And no, I am not going to make a speculative bet (even if what I wrote could suggest a calculated bet).
 
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