Investing in green bond exchange-traded funds (ETFs) as part of a socially-responsible portfolio was our discussion recently. Today, we move on to the opposite end of the spectrum, and look at so-called "sin" or "vice" stocks and funds.
Such shares include businesses in alcohol, tobacco, gambling, marijuana, adult entertainment and defense industries. Investors whose personal convictions allow them to buy "sin stocks" could potentially benefit as they help diversify long-term portfolios. A number of them are also stable dividend-payers—especially tobacco and alcohol stocks.
Research by David Blitz of Robeco Asset Management in the Netherlands and Frank J. Fabozzi of EDHEC Business School in France, highlights that for sin stocks “raw expected return remains higher than that of the market, and, therefore, excluding these stocks will have a negative impact on raw expected portfolio return.”
Similarly, Greg M. Richey of the University of California points out that the “defensive nature of sin stocks [means] some immunity from downside risk due to cyclical fluctuations and economic downturns.”
With that information, here are two ETF that invest in sin stocks.
1. AdvisorShares Vice ETF
Current Price: $35.42
52-Week Range: $21.98 - 36.82
Dividend Yield: 1.03%
Expense Ratio: 0.90% per year
The AdvisorShares Vice ETF (NYSE:VICE), which has 38 holdings, invests in global “vice” industry companies. The actively managed fund started trading in December 2017. In November 2020, it made a ticker change based on its modified investment strategy.
VICE’s sector allocation by weighting is as follows: Gambling and casinos (27.9%), restaurants and hospitality (23.4%), alcohol (22.5%), video games and e-sports (14.5%) and tobacco (9.8%).
The top 10 holdings comprise around 46% of total net assets, which is currently more than $13.7 million. In other words, it is a small fund. Exactly 87.1% of the firms are based in North America. The rest come from Europe (5.7%), the UK (5.5%) and Asia (1.7%).
Among the top holdings are the audio technology company Turtle Beach (NASDAQ:HEAR); alcoholic beverage heavyweight Boston Beer (NYSE:SAM); Turning Point Brands (NYSE:TPB), which provides tobacco and smokeless products like moist snuff or chewing tobacco; casino operator Full House Resorts (NASDAQ:FLL) and France-based luxury group LVMH Moet Hennessy Louis Vuitton (OTC:LVMUY), which is also well-known for its alcoholic beverages.
Year-to-date, the fund is up 16.5% and hit a record high in late April. With a return of more than 55% in the past 52 weeks, VICE has already proven its resilience against lockdowns and could offer more for long-term investors. However, a potential decline toward $35 or even below would improve the margin of safety.
2. Roundhill BITKRAFT Esports & Digital Entertainment ETF
Current Price: $31.69
52-Week Range: $18.53 - $39.38
Dividend Yield: 0.31%
Expense Ratio: 0.50%
The Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSE:NERD) focuses on e-sports and gaming. The holdings range from streaming network operators to video game publishers, league operators and competitive team owners.
Recent metrics highlight:
“The global e-sports market size was valued at $1.1 billion in 2019 and is expected to expand at a compound annual growth rate (CAGR) of 24.4% from 2020 to 2027… The professionalization in the industry has created lucrative opportunities for game developers, gamers, influencers and event organizers.”
NERD, which tracks the Roundhill BITKRAFT E-sports Index, has 35 stocks. The top sectors include games (41.3%), hardware (27.7%) and media (22.7%). Since its inception on June 2019, net assets have grown to $102.5 million.
Over a quarter of the companies come from the US. Next in line are firms based in China (19.2%), followed by Japan (8.8%), South Korea (7.8%), Sweden (7.5%), Singapore (7.3%) and Taiwan (6.9%). The leading 10 names comprise about 44% of NERDS's net assets.
Interactive entertainment content publishers Activision Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA); Sweden-based entertainment group Modern Times (ST:MTGa), Chinese based Tencent Holdings (OTC:TCEHY) and gear provider for gamers Corsair Gaming (NASDAQ:CRSR) top the list of current holdings.
Year-to-date, NERD is up about 6.5% and saw a record high in mid-February. However, since then the fund has given up some of its annual gains. As a result, potential investors now have a better entry point into the fund.