Cloud computing and cannabis are two high-growth sectors that all investors may want to have some exposure to in the long haul. They possess some of the most promising opportunities out there today.
A great way to add exposure to these industries is by holding a couple of exchange-traded funds (ETFs) that can give you a broad mix of stocks in each sector. Two funds that should be on your radar today include the AdvisorShares Pure US Cannabis ETF ( MSOS -0.54% ) and First Trust Cloud Computing ETF ( SKYY 1.46% ).
1. AdvisorShares Pure US Cannabis
The U.S. pot market isn’t legal just yet. But at this point, it’s only a matter of time before it is. Support for legalization is at record levels, and even if it doesn’t happen under President Biden’s watch, it may under the next administration; given the popularity of marijuana, it may even become part of an election campaign — that’s what helped lead to legalization in Canada.
Legalization would lift many barriers for the industry. Currently, multi-state marijuana operators can’t have their products cross state lines, even if both states have legalized cannabis. Cannabis companies also have difficulty with obtaining banking services that legal industries take for granted. While more red tape and taxes will likely offset some of those gains once the government legalizes pot, the net result should be an overwhelming positive for the industry.
Adding the AdvisorShares Pure US Cannabis ETF to your portfolio could be an optimal way to stake out an early position in this sector. The fund focuses on marijuana businesses in the U.S. market (which is a better alternative to holding shares of struggling Canadian pot stocks), including big names such as Trulieve Cannabis, Green Thumb Industries, and Curaleaf Holdings.
The fund is actively managed, which is a good feature as it ensures that as the industry changes over time, the ETF will help give investors the best mix of U.S. cannabis stocks.
In the past year, the ETF hasn’t done well, falling 56% while the S&P 500 has risen by 14%. With legalization not looking to be imminent, the sector hasn’t been a popular place to invest in these days. But that can and likely will change in the future. Investing into the cannabis sector now, while valuations are low, can lead to superior gains over the long haul.
2. First Trust Cloud Computing
Cloud computing is a safer place to invest in, since, unlike marijuana, it doesn’t involve an illicit industry. And it is also a sector that should offer significant growth opportunities in the future. The pandemic has pushed businesses to be more versatile, leading to greater digitization. According to estimates from Grand View Research, the global cloud computing market may be worth more than $1.2 trillion by 2028, growing at a compounded annual growth rate of more than 19% until then.
You can invest in cloud computing by going with the big tech giants, but given their lofty valuations, the gains may not be as strong as if you went with a more diverse portfolio that also includes smaller stocks. And that’s where First Trust Cloud Computing ETF may provide an attractive alternative. It holds more than 65 stocks in its portfolio. Its top three holdings include tech companies VMware, Arista Networks, and Alphabet, with each one of those stocks accounting for more than 4% of the fund’s total weight.
In 12 months, the fund has dipped 14% in value, doing better than the cannabis ETF but still worse than the S&P 500. However, its performance would have been much better if not for the recent sell-off in growth stocks. Over the long term, that pattern isn’t likely to persist, and that could make now an ideal time to invest in the fund.
Holding the cloud computing and cannabis ETFs together could be a way for investors to diversify their holdings while also positioning themselves to benefit from the attractive growth opportunities in both sectors.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.