“Sin stocks” are stocks that come with some cultural and lifestyle baggage that may not appeal to investors who take an ethical stand on the company their portfolio keeps. Proponents of these types of stocks point to the fact that some studies show that many sin stocks have, historically, performed better than their more “wholesome” market competitors.
Sin stocks are also known as “vice stocks,” and though they may have baggage, it doesn’t mean that some investors don’t think they’re a good fit for their portfolios.
What Are Sin Stocks?
Sin stocks take the definition of “sin” (i.e., an “immoral act”) and apply it to financial securities. The term “sin stock” refers to stock in companies that engage in businesses and markets that cultural forces may deem as unethical.
There’s actually no formal sin stock list, and many individuals and institutions have their own idea of what constitutes a sin stock. This may include different types of investments in one or more of the following categories, which include some of the largest corporate brands in the world.
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This sector includes big name companies that are involved or in the orbit of the gambling space. They can include casinos, sports betting applications and platforms, entertainment companies, and more.
The adult beverage market includes numerous staples, including the makers or creators of various beers and wines. There are many on the market, including some large beverage conglomerates.
This sector includes companies that traditionally produce cigarettes or other tobacco products. As with the alcohol sector, there are some large conglomerate companies in the space.
Weapons and defense
The weapons and defense market – think firearms and military arsenal providers. It may also include aerospace or even tech companies.
Sex and adult entertainment
This sector includes all sorts of companies, ranging from adult-themed social media networks to publishers and media companies.
This sector includes a host of energy companies that may be involved in the production of coal, oil, or gas.
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Pros and Cons of Sin Stocks
Like any stock market category, vice stocks have their upsides and downsides. Here’s a closer look:
Potential Pros of Sin Stocks
• The “shun” factor. With many investors turning up their nose at sin stocks, other investors can wade in and potentially get good value on vice-themed portfolio plays. Stocks that some investors avoid could end up undervalued.
• Sin companies may have less competition. While every business has its own unique identifiers, the stigma of being viewed as a company that profits on vice may thin the competitive playing field. Companies in sectors with less competition allow those companies that do operate in a “vice” sector to have products and services with higher demand and fewer barriers to robust profits.
• Recession resistance. Are sin stocks recession proof? Not completely, but they may perform better than their peers during a downturn. No matter what the economy is doing, for example, people may down a pint at the pub or puff a quality cigar. Even if those habits aren’t for you, you may be able to profit from other people’s habits.
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Potential Cons of Sin Stocks
• Ethical qualms. There’s evidence that specific sin stock products like cigarettes, liquor and gambling may create health hazards that lead to severe illness and even death. Investors in those sectors may worry about the ethics of profiting on habits that lead to negative physical and mental health consequences.
• Subject to cultural or regulatory shifts. While they may be less prone to recessions, some sin stocks may carry investment risk due to changes in the regulatory or cultural landscape. For example, increased gun control measures could decrease the value of firearms manufacturers while expanded legal betting could increase the value of gambling stocks.
Sin Stocks vs Angel Stocks
Sin stock sectors often sit on the opposite side of the spectrum from environment, social and governance (ESG) stocks, which have risen in prominence over the past 20 years, as investors look for ways to align their portfolio with their values.
Performance-wise, the edge may go to sin stocks, however, which have performed as well or better than ESG stocks. It’s worth keeping in mind that “sin stock” is a subjective term. One person’s sin stock may be another person’s perfectly reasonable stock.
As an extreme example, one of the sins listed by religious historians is sloth. Under that definition, an investor in streaming services may be labeled as a sin stock investor by engaging with companies that contribute to sloth, via long stretches of binge-streaming.
Or, one investor may view defense stocks as a virtuous investment, since these companies build products that help defend the United States from potential enemies. Another investor may view defense stocks as sin securities, since the companies produce tanks, guns and helmets wind up on battlefields where soldiers are killed or wounded.
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How to Invest in Sin Stocks
If you invest in broad index funds, you likely already have some exposure to sin stocks, since they’re traded on all the major exchanges. If you’d like more exposure to sin stocks, you can evaluate individual stocks for potential investment, or purchase shares in a thematic ETF in a sector such as gaming or energy more diversification within that field.
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Sin stocks are shares of companies that operate in sectors that some investors may not be comfortable supporting. They can include stocks of companies that produce products like alcohol or tobacco, or even those that operate in the adult entertainment space, or those that produce fossil fuels.
While some sin stocks have delivered outsized returns for investors, the decision as to whether you should invest in a specific sin stock or sector is a personal one. You’ll want to consider your own ethics and values as well as the performance of the stock and how it could fit into your overall portfolio strategy.
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