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Diversify Your Portfolio With a New Psychedelic Drug ETF

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A new thematic ETF has just hit the market to provide exposure to the medicinal psychedelic drug industry. Notably, the investment world is witnessing investors' increased inclination toward thematic ETFs. Keeping up with the trend, Elemental Advisors Inc. recently launched the PSYK ETF PSYK.

PSYK in a Nutshell

The PSYK ETF is comprised of a portfolio of companies that are involved in the research, development, production and/or use of psychedelics to address medical conditions in legal pharmacological applications in multiple jurisdictions.

This thematic ETF tracks the performance of the Enhanced Consciousness Index. If fewer than 25 psychedelic companies are eligible for inclusion in the index, it will also have to include neurology biopharmaceutical companies, subject to 35 total companies in the index. Only stocks of developed market countries or ADRs of emerging markets countries that fulfill the minimum capitalization and liquidity criteria are eligible for inclusion in the index.

Biohaven Pharmaceutical Holding Company Ltd. (BHVN - Free Report) , Intra-Cellular Therapies, Inc. (ITCI - Free Report) and Sage Therapeutics (SAGE - Free Report) are the top three holdings of the fund. It charges an expense ratio of 0.75%.

What Makes PSYK an Attractive Pick?

Psychedelic drugs are also commonly termed hallucinogens. They are basically a group of substances, including psilocybin, applied to alter and improvise sensory perceptions, thought processes, and energy levels (per verified sources). Treatment of depression, addiction, anxiety and posttraumatic stress disorder (PTSD) may be done using psychedelic medicines, therapeutics, and healthcare treatments.

Mental health conditions have also been a concern due to their rising rates. The situation has worsened due to the coronavirus pandemic and the lockdown measure imposed to control the outbreak. Globally, the number of patients with mental disorders has risen from the trauma and stress caused during the phase. This has created increased market opportunities for the psychedelic drugs market that can provide increased potential for treating mental disorders.

In fact, a study by Harvard indicates that the medical cost of mental health conditions is projected to increase to $6 trillion by 2030. A Research and Markets report also estimates the psychedelic drugs market to expand at a robust rate of 14.5% CAGR between 2021 and 2026 and will value around $6330 million in 2026 from $3210 million in 2021. Moreover, the same report anticipates depression to dominate the mental disorder conditions as it has a more than 40% market share in 2021.

Globally increasing research and development investment and activities in psychedelic therapeutics categories are expected to keep supporting the space. A Research and Markets report also highlights that the North American region leads the psychedelic drugs market. Increasing awareness of mental health conditions such as depression and stress is expected to accelerate growth in the psychedelic drug market.

In this regard, Tim Collins, a founder and President of Elemental Advisors, has reportedly commented that “Mental health issues, such as depression, PTSD and substance abuse, continue to be big societal problems, which have likely grown due to COVID-19 and the subsequent lockdown environment. While current treatments for these conditions can often be inadequate, there’s been some recent groundbreaking research that has shown psychedelic compounds to be a safe and effective treatment for people suffering from these illnesses. For these reasons, coupled with the growing societal and regulatory acceptance of psychedelics, we believe that the psychedelic drug market is on the cusp of realizing its true potential and that the PSYK ETF can be an attractive option for savvy investors who are looking to gain access to this burgeoning segment on the ground floor.”

ETF Competition

The fund faces some competition due to its focus on the medicinal psychedelic drug industry. Below we discuss a few ETFs that expect to benefit from the said space:

Consider the following interesting options:

Defiance Next Gen Altered Experience ETF

Launched in May 2021, PSY seeks to track the total return performance, before fees and expenses, of the BITA Medical Psychedelics, Cannabis, and Ketamine Index. The BITA Medical Psychedelics, Cannabis, and Ketamine Index is a rules-based index that tracks the performance of companies listed in North American Exchanges that derive at least 50% of their revenues from the usage of Psychedelics, Medical Cannabis, and Ketamine for medicinal and health treatment purposes.

The fund provides 54.9% exposure to psychedelics along with 45.1% to cannabis pharmaceuticals and CBD derivatives. It charges an expense ratio of 0.75%. The fund has accumulated AUM of $8.3 million so far (read: 3 Psychedelic Stocks to Play the Shroom Boom).

AdvisorShares Psychedelics ETF (PSIL - Free Report)

The fund is an actively managed ETF that seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets (plus any borrowings for investment purposes) in (i) securities of companies that derive at least 50% of their net revenues from or devote 50% of their assets to psychedelic drugs and (ii) derivatives that have economic characteristics similar to such securities.

Launched in September 2021, the fund has AUM of $6.6 million. It charges an expense ratio of 0.68%.

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