Take 5: Investing in sin stocks
With no dedicated vice fund in the UK, investing in sin requires looking a little deeper. Here are five top tips for gaining exposure
Sin stocks have long been profitable, making money from vices people can’t live without. While they may sound appealing to your clients, what do you need to consider before investing in them? Find out more with MM’s guide.
1. Think about the ethics. There is no black and white when it comes to investing ethically (or not). Sin stocks can include everything from tobacco and gambling to oil and pharmaceuticals – no two people will have exactly the same views on what is acceptable. Get a clear grasp on your client’s perspective before taking the plunge.
2. Consider how to get access. Investors with a large amount to invest may be able to hold equities directly, but most will be restricted to funds. While there is no fund offering direct exposure exclusively to sin stocks, some have quite a large holding in particular sectors, as shown in MM’s feature on sin stocks. While there is no guarantee of a fund continuing to have the same allocation, it is possible to see which collectives have exposure at present.
3. Don’t be led by temptation. Most sin stocks will be held by a fund due to the underlying credentials of the business rather than their appeal as something risque. While your clients may be tempted by the idea of making money through vices, the same rules of investment fundamentals still apply.
4. Beware of sector-specific risk. Tobacco companies have been hit hard by legislation in recent years and, while growth in emerging markets is still good, the western demonisation of vices is unlikely to go away. Alcohol and gambling face similar problems, despite gambling’s rapid expansion in the online arena.
5. Figure out the portfolio positioning. Alcohol, tobacco, arms and gambling are often seen as defensive stocks as they tend to hold up well during market turbulence. They can be useful for hedging a portfolio; conversely, excluding them could add volatility to investment performance.
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