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A Closer Look at the Actively-Managed PSIL Psychedelic ETF

The article A Closer Look at the Actively-Managed PSIL Psychedelic ETF was originally published on Microdose.

Last week we reported that AdvisorShares…

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The article A Closer Look at the Actively-Managed PSIL Psychedelic ETF was originally published on Microdose.

Last week we reported that AdvisorShares would be launching a new psychedelic medicine ETF. The ETF began trading on Sep 16th on the NYSE Arca exchange, under the ticker “PSIL”.

A new ETF for the industry would be big enough news, especially one by a major firm that trades on a senior US exchange. What makes the PSIL news even more interesting is that it’s the industry’s first actively-managed ETF.

PSIL: The industry’s first actively-managed psychedelic ETF

Most ETFs are passively-managed (according to this article by MorningStar “active ETFs account for just 3.5% of the $6.6 trillion that investors have allocated to ETFs”), so the vast majority of funds follow the straightforward route of populating and ranking their funds by following an index, often related directly to the market cap size of each company.

This is a safe and perfectly acceptable way of giving investors exposure to a market. Market capitalization-based holdings can also give a handy wide view of the sector, and Microdose often uses the Horizon’s “PSYK” ETF to update readers on macro market trends.

But for the individual investor looking to maximize gains, actively-managed funds can offer the opportunity for more potential value.

From the PSIL website:

The psychedelic marketplace is rapidly evolving, witnessing ongoing innovation and an influx of new investment opportunities, as well as volatility. Using daily, active management, PSIL’s portfolio manager can adjust the portfolio more quickly and opportunistically than a passive index-based strategy that must wait for periodic rebalancing.

Do actively-managed funds outperform passive portfolios in the long run? Is a market cap approach safer in a volatile new market like psychedelic medicine? The general rule is that “you can’t beat the market”, but does this truism hold here? It seems that much depends on the fund manager making the calls and the realities of the specific sector (Morningstar has an in-depth Active vs Passive Report).

So while I harass my finance professor buddy for insights into the long-term performance of the two approaches, let’s have a look at which companies are included in the PSIL ETF and what this new fund might offer investors.

Top 10 holdings of the PSIL ETF

Top 10 holdings of the PSIL ETF

  • We immediately see a difference with the passive approach as Cybin is given the top spot and highest weight in the portfolio. By market cap Cybin would be ranked #5, so the fund manager seems to have noticed Cybin’s uplisting to the NYSE, strong financial position, and a string of positive news and analyst coverage. Cybin’s market capitalization is over 7 times smaller than ATAI’s, the current market cap leader, so PSIL has bucked the passive view and deemed Cybin a solid mix of stability and growth opportunity.
  • Field Trip Health being bumped to #3 is a similar example. Many times smaller than both Compass and MindMed, Field Trip nonetheless is a top firm and leader in the treatment clinic space. Their higher ranking seems a recognition of both their growth potential and solid foundation.
  • At #6 we start seeing the real flexibility of active-management. Greenbrook TMS is not a name you’d normally associate with top psychedelic firms, but the company’s large network of over 120 in-person clinics is advancing innovative treatments for conditions like depression. And the company has signed a partnership with Cybin, hoping to position itself as a leader in future psychedelic treatments once drugs are approved.
  • Another bold move is putting Wesana Health at #8. Valued at only $42 million Canadian, Wesana would have no business in a passively-managed top 10. But the PSIL management team seems to think Wesana’s tackling of an under-researched sector (Traumatic Brain Injury) leaves them without much competition. Definitely a riskier bet, but shows the fund is doing its industry homework.
  • Rounding out the top 10 is Mydecine. At approx $83 million MYCO would not make the top 10 by market capitalization, but the company has had a run of big announcements, including a 5-year partnership with the prestigious Johns Hopkins University and the announcement of a Phase 2/3 clinical trial for smoking addiction that would put them ahead of most in the industry and give them a foothold in a huge potential market.

So we see that there’s indeed potential for some bold moves and insight that passively-managed funds can’t offer (they only rebalance every quarter and often don’t stray too far from the underlying index or market cap ranking).

Will this freedom and flexibility lead to more value in the long run? Or simply more risk? Perhaps only a heroic dose could give us such cosmic insight.

In the meantime, investors open to a bit of risk should remember that even the boldest moves are usually limited to under 10% portfolio weight, with most holdings getting less than 5% each. So any wild moves will be watered down and protected by the inherent risk-dilution offered by the ETF’s diversification.

Stay tuned to Microdose for updates on the new ETF’s performance.

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