Best Performing ETFs of September 2023

With the potential of major regulatory changes, marijuana exchange-traded funds filled the list of best performers in September, while hydrogen stocks sagged on higher interest rates. 

The best-performing ETF in September was the Roundhill Cannabis ETF (WEED), which returned 72%, while the worst-performing was the Global X Hydrogen ETF (HYDR), which lost 14%, according to data from etf.com. Funds were ranked according to one-month trailing total returns as of Sept. 29. Inverse funds, leveraged funds and funds that don't trade on U.S. markets were excluded. 

Looser Regulation Possible

At the end of August, Bloomberg reported that the U.S. Department of Health and Human Services sent a letter to the Drug Enforcement Administration recommending that the DEA reclassify marijuana as a Schedule III drug. It is now a Schedule I drug.

Rescheduling would provide numerous benefits to marijuana businesses, and that possibility boosted marijuana stocks and the ETFs that hold them. Hydrogen stock funds lagged, falling as high interest rates weighed on companies struggling to reach profitability. 

“After years of government promises and expectations from politicians, we are finally seeing some real headway in federal marijuana law reform,” Dan Ahrens, portfolio manager of the AdvisorShares Pure US Cannabis ETF (MSOS) and AdvisorShares Pure Cannabis ETF (YOLO), actively managed marijuana stock ETFs, said in an interview. 

Best Performing ETFs

Worst Performing ETFs

Marijuana ETFs Get High 

If the DEA agrees to reschedule marijuana, the biggest impact, according to Ahrens, is the change in how the businesses would be taxed. A tax rule known as 280E prevents businesses from making normal business deductions related to selling Schedule I or II substances. 

“This is huge, companies have effective tax rates of 50%, 60%, 70% or more, this would turn companies from cash flow negative to positive in an instant,” Ahren said. 

The DEA still needs to agree to reschedule marijuana, and this wouldn't legalize marijuana on a federal level. 

Another boon to marijuana stocks is the passage of the SAFER Banking Act through the Senate Banking Committee. The bill, in enacted, would make it much easier for marijuana businesses to gain access to banking services.  

Hydrogen ETFs Fall 

Funds that hold stocks of companies involved in producing the lightest element are sinking. High interest rates are hard on companies that haven't yet reached profitability as they need to borrow more than companies whose revenue cover their expenses.  

Plug Power and Bloom Energy Corp., the top two holdings of HYDR and the Defiance Next Gen H2 ETF (HDRO), both posted losses in their most recent quarter.

Greek Stocks Pull Back 

Global X MSCI Greece ETF (GREK) placed third in the list of worst-performing funds, pulling back in September after major gains earlier this year. GREK returned more than 20% year-to-date and more than 50% over the past year as the Greek economy has surged back from the crises of the 2010s. The Greek government has also received multiple credit rating upgrades recently, lowering borrowing costs for the country. 

Besides potential profit-taking from investors after the Greek market major run-up, another possible reason for the selloff is that Greece was hit by storms in September that caused flooding in agricultural areas. According to the Associated Press, the damage is likely in the billions. 

Contact Gabe Alpert at [email protected]