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If Sin Stocks Are Your Vice, Consider These 2 ETFs

By Investing.com (Tezcan Gecgil/Investing.com )ETFsAug 07, 2020 03:27AM ET
www.investing.com/analysis/2-etfs--for-investing-in-sin-stocks-200533223
If Sin Stocks Are Your Vice, Consider These 2 ETFs
By Investing.com (Tezcan Gecgil/Investing.com )   |  Aug 07, 2020 03:27AM ET
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While yesterday we addressed socially responsible ETFs, today we'll look at the opposite end of the spectrum: "sin" or "vice" stocks. 

These stocks include those in alcohol, cannabis, gambling, adult entertainment and defense industries. Market participants whose personal convictions permit them to invest in "sin stocks" can benefit as they offer added diversification.

Not only does the use of tobacco and alcohol tend remain stable even in recessionary times, but many of these companies also deliver robust dividend payouts. Similarly, defense shares usually outpace the growth of broader markets—such as the S&P 500 index—during economically challenging times.

With all that in mind, here are two vice ETFs to consider:

1. Advisor Shares Vice ETF (ACT)

  • Current Price: $24.83
  • 52-Week Range: $16.16 - 25.85
  • Dividend Yield (TTM-Trailing Twelve Month): 2.52%
  • Dividend Distribution Frequency: Annually
  • Net Expense Ratio: 0.99 % per year, or $99 on a $10,000 investment

The AdvisorShares Vice ETF (NASDAQ:ACT), which has 32 holdings, seeks concentrated exposure to mainly US-listed equity securities of alcohol and tobacco companies. ACT states that it only invests in cannabis-related companies conducting federally legal business per the US government.

It is essential to highlight that in 2018, Canada became the first G7 nation to legalize cannabis federally, i.e., nationwide.

However, at the federal level, marijuana is illegal in the US and remains a Schedule I drug. On the other hand, at the state level, the legal status of marijuana depends on the laws of the individual state.

In other words, the legalized marijuana industry is still in its infancy, even in Canada, and it is almost non-existent globally. Yet, the legal cannabis market is expected to be worth over $70 billion by 2027. The medical segment will likely hold the leading revenue share of about 70%. And the rest will be recreational adult-use.

The listing requirements at the NYSE or NASDAQ as well as at the Toronto Stock Exchange (TSE) bar companies from engaging in commercial activities in countries where they would be breaking the law.

Sector allocation of the exchange-traded fund (by weighting) is as follows: Cannabis-related (40.9%), Alcohol (27.1%), Alcohol with Cannabis Exposure (8.6%), Tobacco with Cannabis Exposure (8.6%), Tobacco (5.80%) and Restaurant & Entertainment (9.0%).

The top ten holdings comprise around 60% of total net assets, which stand at almost $10 million. ACT's top three companies are Boston Beer Company (NYSE:SAM), Thermo Fisher Scientific (NYSE:TMOand Abbott Laboratories (NYSE:ABT).

ACT Weekly Chart
ACT Weekly Chart

Year-to-date, the fund is down 0.96%, i.e., practically flat. However, earlier in March, ACT hit an all-time low of $16.16 and since then it is up over 50%, so $1,000 invested in ACT in early spring would now be worth over $1,500.

2. ETFMG Alternative Harvest ETF

  • Current Price: $12.94
  • 52-Week Range: $8.81 - 29.25 
  • Dividend Yield (TTM-Trailing Twelve Month): 7.57%
  • Dividend Distribution Frequency: Quarterly
  • Expense Ratio: 0.75 % per year, or $75 on a $10,000 investment

ETFMG Alternative Harvest ETF (NYSE:MJ), which has 36 stocks, tracks the Prime Alternative Harvest index.

This benchmark index measures the performance of companies benefitting from global medicinal and recreational cannabis legalization initiatives. Like ACT, MJ does not invest in any US or foreign companies whose business activities would be illegal under any applicable federal or state law.

Sector allocation of the fund (by weighting) is as follows: Pharmaceuticals (56.4%), Tobacco (24.7%), Biotechnology (9.1%), Fertilizers & Agricultural Chemicals (3.1%), Paper Products (2.6%), Agricultural Products (2.4%) and Asset Management & Custody Banks (0.6%).

The top ten holdings make up close to 60% of total net assets, which are around $555 million. MJ's top three companies are GW Pharmaceuticals (NASDAQ:GWPH), Cronos Group (NASDAQ:CRON), and Canopy Growth (NYSE:CGC).

UK-based GW Pharmaceuticals, a leading cannabinoid-focused biotech company, is MJ's largest holding, accounting for 11.1% of its assets.

A 2018 report by the United Nations revealed that Britain is the biggest producer and exporter of legal cannabis in the world. Virtually all of the UK's cannabis exports are contained in one drug, Sativex, which is produced by UK-based GW Pharmaceuticals. It is used to treat spasms in multiple sclerosis patients.

Currently, it is hovering at around $132.10, GWPH stock soared from about $10 in 2013 to an all-time high of $196 in May 2019. 

MJ also owns shares of the companies that provide ancillary products and services to the cannabis companies, including Scotts Miracle-Gro (NYSE:SMG), which is known for its fertilizer products.

MJ Weekly Chart
MJ Weekly Chart

So far in the year, MJ is down about 24%. However, since late March, the fund is up over 50%.

Bottom Line

Market participants may be able to decrease the volatility of investing in individual stocks by holding more of them or by investing in an ETF. And thematic funds such as ACT or MJ can help investors construct a diversified portfolio. As always, before investing in any ETF, it is essential to do further due diligence.

If Sin Stocks Are Your Vice, Consider These 2 ETFs
 

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If Sin Stocks Are Your Vice, Consider These 2 ETFs

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Comments (2)
Jeremy Childress
Jeremy Childress Aug 07, 2020 11:42AM ET
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Marijuana use is not sinful. Marijana is a medicinal plant put here by God himself to be used as a mecication It only becomes sinful when it is used sinfully to excess just like alcohol.
Ben Brown
Ben Brown Aug 07, 2020 10:24AM ET
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Very foolish to make light of sin seeing that thisands of deaths are caused by drunk driving and the like every year. If we as humans had evolved beyond the vice of sin then we could all make light of sin. However, we are most definetly not so a more sober approach is warranted. Voltaire was dead wrong as the Bible is not out of circulation and we desperatley need its principles more and more.
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Jimmy Smith
Jimmy Smith Aug 07, 2020 10:24AM ET
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Correct. No one wants to be reminded that their greed for money will eventually land them in ******** right?
Kiron Bramble
Kiron Bramble Aug 07, 2020 10:24AM ET
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Thomas Colton good job sir!
Jay West
Jay West Aug 07, 2020 10:24AM ET
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Thomas Colton money is the root of evil. Let us not forget. Religion or not, we should make ethical choices when investing. Otherwise you may be supporting something that is exploiting someone or greatly harming them. You only get one chance at life. You cannot take money with you when you leave this earth.
Ben Brown
Ben Brown Aug 07, 2020 10:24AM ET
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Jay West   JW I did not know that one comment would garner so much interest. I believe it speaks to the fact that we all sense that there are extreme challenges on the horizon and must be prepared to maximize our potential while protecting our families and assets. One correction to your post before I tear into the naive response of another. It is the love of money not money itself that is the root if you are referring to the beloved familiar passage. Next, I am up over 1200% this year and looking to break 2k% before November via heavy intraday jobing and swing trading so the comment about while the rest of us make money does not apply as many are not in the position that I am. What Voltaire and his ilk did was make erroneous forecasts about the future and these errors need to be highlighted as much as time permits.Again we have NOT evolved beyond sin and its consequences so many from the past so confidently assured us that we would. They were wrong and from time to time this needs to be noted.
Ben Brown
Ben Brown Aug 07, 2020 10:24AM ET
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Thomas Colton  Wow TC I was visiting the downtown area in my city when I heard several birds shrieking and when I finally turned the corner I saw what the fuss was all about. A medium sized hawk had torn the head off a smaller bird. This from  research is what sin desires to do to us and no amount of reclassifying it or making light of it from any source will change this as we have countless examples written for our stern admonition. Of course the human side of me had compassion on the dead bird and the author here  but DO NOT make the  mistake of thinking that any author can bring up the term sin in somewhat of a condescending manner and not be called out on it from time to time. Historical lines can not be crossed without the expectation of measured push back now can they?
 
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