Saturday, March 17, 2018

"Investing In Vice/Sin Is Practically Always A Safe Bet"

That's Forbes' headline, not mine. I'd have gone with something more risky/rewardy appears they caught the error and changed their headline. It had been the above: 
but now we see:
As Ever, Vice Businesses Present Opportunities For Investors
From Forbes:
There’s an old axiom that investing in companies that deal in vice or sin is recession proof. Dan Ahrens agrees, sort of.
Ahrens is the portfolio manager of Vice Exchange-Traded Funds (ETF) at the just-over-one-year-old Advisor Shares. “Maybe not recession proof … at least recession-resistant,” he says, which is why he is hot on alcohol, tobacco and cannabis.

According to Ahrens, alcohol and tobacco companies have historically performed well in all types of markets because “people will continue to drink and smoke no matter what’s going on in the economy or the stock market.”

What’s going on right now is that wine has become a global industry with a good image, with potential health benefits. Although tobacco is a global industry, its known health risks have resulted in smoking bans.

To individual investors, wine looks favorable, and tobacco looks taboo. But Ahrens says that tobacco remains a favorite among institutional investors: “Tobacco has outperformed the S&P 500 by a wide margin over the past 10 years — even during the tech-heavy bull market. According to many metrics, tobacco has the widest profit margins of any industry.”

Despite wine’s ascendance, Ahrens says that tobacco remains “the most profitable consumer product.”

What about the upstart sin, cannabis? Here, matters aren’t as clear and simple as they are with alcohol and tobacco.

No matter what the states do, and no matter how much investment promise both medical and recreational marijuana present, the existing federal ban on cannabis production and distribution puts a damper on individual investing. For one thing, fund managers cannot deal in an industry that cannot hold a proper and legal bank account.

Why, then, are new EFTs seeking to buy into cannabis?

Advisor Shares' cannabis exposure is limited, but Ahrens says there are investment opportunities, mainly in what he calls “indirect companies like Scott’s Miracle Gro, and in biotech and pharmaceutical companies that are doing federally legal work with cannabis.” He’s talking about the U.S....MUCH MORE
The outperformance of vice is an oddly persistent anomaly which we have been touting since  way back in April 2007's post, "Moral Judgment On 'Sin Stocks' Means Higher Returns For Vice-Friendly Investors" where we explained:
...Prof. Hong lists his research interests as: "Asset pricing with less-than-fully-rational investors; differences of opinion, short-sales constraints and asset prices; social interaction and financial markets; career concerns, biased forecasts and security analysts; organization, performance and mutual funds; asset pricing with asymmetric information and other market imperfections."

Hey! Mine too!...

Since then we have revisited the subject thirty or so times with one of the more interesting being:

Lessons From the 2015 Credit Suisse Global Investment Returns Yearbook: Vice Pays 
An area of profound interest to serious investors.
If you don't read the articles you won't know what I'm talking about when I go on a rant.
More importantly you won't know why the head of the Norwegian Pension Fund's strategy council (pictured below, right) recommended the fund not divest of hydrocarbon equities....
Here's one from last October:

Spending on VICE and Retail Sales
We'll be back with more later this month, there are a lot of things to unpack from the data, including a possible demographic revolution in spending on the traditional VICE products as younger people display marked differences in vice preferences vs. their elders who are now dying off, in part from their bad habits....
From November 2013, getting a handle on Christmas spending:

The Gambling, Liquor and Prostitution Index is Forecasting a Subdued Holiday Season
Another one, this time July 2016:

Money Market Funds at the Zero Bound (plus some vice on the side)
I'm treading on FT Alphaville's Izabella Kaminska's turf (see below).

Long time readers may remember one of this article's co-authors, Marcin Kacperczyk, as the co-author of one of our favorite papers "The Price of Sin: The Effects of Social Norms on Markets" which we turned into a virtual cottage industry by periodically checking in on a portfolio of vice-related equities (it outperformed over most time periods)

From VoxEU:....
... Just amazing that an anomaly should be so persistent.
I can't wait til they put the marijuana mavens in there.
And sexbots.
Get the whole country blissed out and the fund goes to infinity.Who needs Soma?
Here are the funds' holdings.

"the warm, the richly coloured, the infinitely friendly world of soma-holiday. 
How kind, how good-looking, how delightfully amusing every one was! "
-Aldous Huxley, Brave New World
And many more. Use the search blog box, keywords Vice or VICEX (symbol of the Vice mutual fund)