Meb Faber is a true superstar in the investment research world…
You might not have heard of him—because he doesn’t make bold predictions about which stocks will go up by hundreds or thousands of percent.
Instead, his specialty is creating portfolios that consistently beat the market over time with less risk. He aims to outperform the traditional 60/40 portfolio recommended by most wealth advisors. (A 60/40 portfolio is made up of 60% stocks and 40% bonds.)
He’s perhaps most well-known for creating the Trinity Portfolio, which buys countries with cheap stock markets that have started an uptrend. If you’d followed it from 1973 to 2015, you would’ve beaten the S&P 500 by 4.2% per year.
Over that same span, the traditional 60/40 portfolio would’ve turned an initial $1,000 investment into $49,410. Not bad… But if you’d followed the Trinity Portfolio, you would’ve turned that same $1,000 into $254,930—with much less risk.
Now, Meb has been in the exchange-traded fund (ETF) business for over six years. And he’s not into fly-by-night themes.
So I was shocked to learn he’s created a fund tracking one of the biggest money-making trends we’ve been following this year…
And in today’s essay, I’ll tell you which trend that is. But first…
This Trend Checks All Four Boxes
Like stocks, ETFs are securities traded on exchanges. They can hold stocks, bonds, commodities, and other securities. Usually, they track an index or asset class.
The best-known example is the SPDR S&P 500 ETF (SPY), which has tracked the S&P 500 for over 25 years.
Now, a few days ago, I reached out to Meb and asked him what criteria he uses to launch his own ETFs. Here were his four:
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It doesn’t exist yet. (Or he can do it better or cheaper.)
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It has legitimate research supporting the underlying system or concept.
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It’s something he wants to put his own money into.
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It’s something people want.
And one current trend checks all these boxes: cannabis…
You see, Meb believes the emerging cannabis market is the next big thing. And he created the Cambria Cannabis ETF (TOKE) to get in front of the tidal wave of money headed into this space.
TOKE invests in 20–50 of the top cannabis companies. It includes pure plays such as Aphria and Aurora Cannabis… as well as indirect plays, like tobacco and alcohol companies tapping into cannabis.
Now, Meb’s ETF is a big deal.
You see, according to data firm eVestment, there’s $24 trillion worth of institutional assets under management. So even just half of institutional investors making a tiny, 1% allocation to cannabis would lead to over $100 billion of inflows.
And nearly 90% of advisers use ETFs, according to the Financial Planning Association. That’s more than any other security type.
So there’s a race to position themselves early. In fact, three new cannabis ETFs entered the fray in July alone.
Meb told me the gains could be enormous…
How would you like to hop in a time machine and invest in beer companies when the U.S. ended Prohibition in 1933? Those stocks returned an average of 20% per year in the decade following legalization. That’s two times the returns of the overall market.
We have a similar situation developing around the globe in cannabis. Legal restrictions on production and consumption are being lifted.
And he’s right: The cannabis legalization trend is massive and unstoppable.
Congress Will Open the Floodgates
The cannabis industry is in its early innings. Merrill Lynch estimates that hemp-related products alone will disrupt $2.6 trillion worth of industries in the next few years.
But there’s a hodgepodge of laws regulating cannabis in the U.S. And that makes it a challenge for Wall Street to invest in the space.
One form of cannabis, hemp, is now legal across the country. And although 33 states have approved medical or recreational marijuana (another form of cannabis), it remains illegal at the federal level.
So most large institutions won’t touch pot stocks with a 10-foot pole. But as Meb pointed out, that’s changing.
Three major bills are working their way through Congress. And they’ll make it a lot easier for institutional investors to jump into the cannabis space…
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The SAFE (Secure and Fair Enforcement) Banking Act would prevent the federal government from applying sanctions to banks working with cannabis businesses. It would also allow financial institutions to invest in American pot companies without breaking federal law.
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The STATES (Strengthening the Tenth Amendment Through Entrusting States) Act would ensure every individual state makes its own determination regarding the best legal approach to marijuana within its borders. It also amends the Controlled Substances Act to protect individuals and businesses acting in compliance with state regulations regarding cannabis from federal enforcement.
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The Marijuana Opportunity Reinvestment and Expungement (MORE) Act would remove marijuana from the Controlled Substances Act, decriminalizing it and allowing states to write their own policies.
Now, we don’t know if or when these bills will pass… but the writing is on the wall: Marijuana will eventually be legal at the federal level.
With the majority of Americans in favor… and a growing number of politicians taking up the legalization banner, change is inevitable.
And we have a chance to get in front of this generational opportunity…
How to Play It
Like us, Meb believes investors should allocate a small portion of their portfolios to get ahead of this trend.
One way to do this is a small stake in TOKE. It’s actively managed by Meb and his team. And it’s about half the cost of its competition.
And you could also look into well-known, large-cap names with cannabis exposure (such as Philip Morris International or British American Tobacco) or a healthy mix of pure plays. As always, do your homework before making any investment.
Just remember, weed stocks are volatile. So make sure to keep your position sizes small. But with a 10-year time horizon, it’ll be worth your while.
Regards,
Grant Wasylik
Analyst, Palm Beach Daily
P.S. Palm Beach Daily editor Teeka Tiwari says a monumental shift in the cannabis industry is taking place. It’s not nationwide legalization… But it still has the potential to make you life-changing gains.
In fact, if you make just one simple move now, he believes you’ll have a shot at becoming a pot stock millionaire in 2019.
But you must act before September 1. And Teeka will tell you why right here…