For some investors, there are times when sin is in. While there are an increasing number of exchange-traded funds (ETFs) dedicated to environmental, social and governance (ESG) principles, also known as virtuous investing, there are a smaller number of vice ETFs.
In the world of virtuous investing, the old school strategy is to exclude manufacturers and, more recently, retailers of civilian firearms, gambling stocks, tobacco companies and adult entertainment fare, among others. When it comes to vice ETFs, few if any have direct exposure to adult entertainment equities because that particular universe is not highly investable.
The current crop of vice ETFs include more focused plays, such as funds focusing explicitly on specific vices. For example, today’s vice ETFs include a marijuana fund, a gambling ETF and so on.
Here are some of the ETFs to buy for investors looking to profit from sinful asset classes.
Vice Etfs to Buy: VanEck Vectors Gaming ETF (BJK)
Expense Ratio: 0.65%, or $65 annually per $10,000 invested
Given the sheer revenue generated by the gambling industry and its global reach, it may be surprising to some investors that there is only one ETF to buy for dedicated gambling exposure: the VanEck Vectors Gaming ETF (NYSEARCA:BJK).
BJK has been around over a decade and represents one of the premier avenues for accessing the booming Macau gambling market. Macau, the only Chinese territory where gambling is legal, is the world’s largest gambling market. Sixteen countries are represented in BJK, but given the dominance of Las Vegas and Macua on the global gambling stage, this vice ETF allocates about 55% of its combined weight to the U.S. and China.
BJK holds 44 stocks and its top 10 holdings include familiar names, such as Las Vegas Sands (NYSE:LVS) and MGM Resorts (NYSE:MGM). For patient, risk-tolerant investors, BJK could be an ETF to buy as a way of tapping into the expected growth of online gambling and increased legalization of sports gambling in the U.S.
Vice Etfs to Buy: ETFMG Alternative Harvest ETF (MJ)
Expense Ratio: 0.75%
Canada has multiple marijuana ETFs to buy, but in the in U.S., the ETFMG Alternative Harvest ETF (NYSEARCA:MJ) is the only game in town when it comes to weed ETFs.
MJ has had its shares of struggles this year, but this vice ETF has recently been in rally mode following news that spirits giant Constellation Brands (NYSE:STZ) is investing $3.8 billion in Canopy Growth (NYSE:CGC). Canopy is MJ’s largest holding at almost 9.40% of the fund’s weight.
On a global basis, legal marijuana sales are expected to triple from current levels by 2022, a number that could grow even higher depending upon the execution of new legal weed efforts in major markets, including California and Canada.
Vice Etfs to Buy: Invesco Dynamic Food & Beverage ETF (PBJ)
Expense Ratio: 0.59%
Among vice ETFs, the Invesco Dynamic Food & Beverage ETF (NYSEARCA:PBJ) is one of the least offensive, morally speaking. As its name implies, PBJ focuses on food and beverage stocks. The fund’s 30 holdings are three alcohol stocks, including Constellation Brands and Boston Beer Company (NYSE:SAM).
PBJ’s underlying index evaluates companies based on price momentum, earnings momentum, quality, management action and value, according to Invesco.
While many old guard food companies, such as General Mills (NYSE:GIS) and Kraft Heinz (NASDAQ:KHC) have taken steps to add more healthy fare to their lineups, these companies and rivals still offer some products that can be considered indulgent and sinful.
Additionally, YUM! Brands (NYSE:YUM), one of the largest fast-food companies in the U.S., is a top 10 holding in PBJ and fast food fits the bill as sinful.
Vice Etfs to Buy: AdvisorShares Vice ETF (ACT)
Expense Ratio: 0.75%
The AdvisorShares Vice ETF (NASDAQ:ACT) is an actively managed fund with credible sin stocks exposure. ACT offers investors broad-based exposure to three consumable vices: alcohol, cannabis and tobacco. Alcohol stocks are ACT’s biggest industry weight at 56%, while tobacco and cannabis represent 26% and 18%, respectively.
This ETF to buy debuted last December and year-to-date, it has managed to outperform the largest consumer staples ETF.
“Alcohol and tobacco possess an established history of delivering attractive returns through multiple market cycles,” according to AdvisorShares. “The emergence of select cannabis-related companies and their growth potential adds a compelling element to an investment theme historically resilient to market drawdowns and recessionary environments.”
Well-known ACT holdings include Boston Beer and Constellation Brands.
Vice Etfs to Buy: Invesco Dynamic Leisure and Entertainment ETF (PEJ)
Expense Ratio: 0.61%
The Invesco Dynamic Leisure and Entertainment ETF (NYSEARCA:PEJ) uses a similar methodology to the aforementioned PBJ and like its stablemate, PEJ is an example of a vice ETF that is not overly sinful.
This ETF to buy allocates nearly three-quarters of its weight to the consumer discretionary sector. Within PEJ’s consumer discretionary allocation are some casino stocks, including Las Vegas Sands. Adding to PEJ’s decadence is exposure to six restaurant operators, all of which have some tasty fare, but none of which are often associated with healthy eating.
A risk with PEJ is that it is a heavily consumer discretionary ETF, but it is apt to lag traditional funds tracking the sector for a simple reason: Amazon (NASDAQ:AMZN), the largest consumer discretionary stock, is not part of PEJ’s roster.
As of this writing, Todd Shriber owned shares of General Mills.