Exchange traded funds (ETFs) have become one of the most popular investment vehicles over the last 10 years. And like many index funds, there are index funds to fit every investing style. If you’re an investor whose personal convictions allow you to invest in sin stocks, then there are some vice ETFs that you may want to consider.
Sin stocks are companies that allow us to indulge our vices. These include gambling, alcohol, tobacco, and cannabis companies. However, they also now capture the gaming community in all its forms.
Most of the sin stocks were hit hard at the onset of the pandemic. But many of these categories are coming back. One reason for that is mounting evidence that our nation is moving on from the pandemic.
As it relates to sin stocks, casinos have reopened in many states. The return of live sports has provided a catalyst for online and in-person sports books. Several states just passed ballot initiatives to legalize recreational marijuana. And while the bar and restaurant industry is still providing a drag on alcohol sales, it appears that consumers are still stocking their home bars.
Here are 5 vice ETFs for safe investment in sin stocks:
- AdvisorShares Vice ETF (NYSEARCA:VICE)
- VanEck Vectors Gaming ETF (NYSEARCA:BJK)
- VanEck Vectors Video Gaming and eSports ETF (NYSEARCA:ESPO)
- ETFMG Alternative Harvest ETF (NYSEARCA:MJ)
- Invesco Dynamic Leisure & Entertainment ETF (NYSEARCA:PEJ)
Sin stocks remain volatile, and as I mentioned above, not all vice stocks are performing equally well. That’s a good reason to look at vice ETFs for portfolio exposure.
Vice ETFs for Safe Investment: AdvisorShares Vice ETF (VICE)
The AdvisorShares Vice ETF focuses on growth stocks through direct exposure to industry leaders in the alcohol and tobacco sectors. According to the fund’s website, this benefits investors in two distinct ways.
First, the alcohol and tobacco sectors are heavily regulated, which give established companies a moat. These sectors also tend to provide higher profit margins than other sectors. And many of the top names in these sectors also pay a secure dividend which can help the fund’s total return.
In addition to alcohol and tobacco, the fund allocates some of its resources to emerging cannabis-related companies. While the short-term narrative for cannabis is still being written, the long-term outlook for the sector remains strong.
The ACT ETF is lagging behind the broader market, with a gain of just 8.5% at the time of this writing. But looking at the stock through a wider lens, you will see that the stock is up more than 68% since bottoming out back in March.
VanEck Vectors Gaming ETF (BJK)
The next of our vice ETFs to look at comes from the VanEck family of ETFs. The Vectors Gaming ETF has 50% of its allocation in the global gaming industry. This is a small ETF when compared to some of the other ETFs in the VanEck portfolio. But that isn’t uncommon when it comes to targeted ETFs such as this.
DraftKings (NASDAQ:DKNG) is the fund’s fifth-largest holding in the BJK ETF, and DKNG stock is up nearly 300% for the year. And with digital betting only continuing to grow, that seems likely to increase.
I also think it’s interesting to note that the fund’s top holding is Flutter Entertainment (OTCMKTS:PDYPY). This is a stock that is making issues like sustainability a marketing message. The company’s web site shows that they have are in the process of renovating their offices in Dublin and London to reduce its carbon footprint.
Will this matter to gamblers? It just might. The millennial generation is much likely to invest based on its values. And few causes are closer to their heart than the issue of climate change.
The fund is down 5% for the year. And that may be due to the fact that the fund has heavy exposure to the global casino market. Those markets still need time to rebound.
VanEck Vectors Video Gaming and eSports ETF (ESPO)
Another way to play vice ETFs is by looking to the burgeoning video gaming and eSports sectors. Even prior to live sports being cancelled by the pandemic, eSports was red-hot. With many Americans spending a lot of time at home, it’s no surprise that the ESPO ETF is up over 65% this year.
Of course it doesn’t hurt that one of the fund’s largest holdings is Activision Blizzard (NASDAQ:ATVI). And since gamers require the latest and greatest hardware and software to ensure they get maximum performance. That’s why this fund also provides investors exposure to companies like Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) .
No matter what age you are, you know that video games (even an app like Candy Crush you play on your phone) are undeniably addicting; hence their inclusion among vice stocks. But when you look at the millennial generation and particularly Generation Z, the allure of playing the games online against another competitor is particularly attractive.
And while watching other people play video games has no allure for me, it’s different for gaming enthusiasts. Far be it from me to miss out on profits.
ETFMG Alternative Harvest ETF (MJ)
Cannabis investing is one of the riskiest areas of investing. And for the better part of the last two years, it’s been a losing proposition for investors. And the MJ ETF is no exception. The fund is down 35% for the year.
But cannabis is a long game. And that’s the reason that InvestorPlace contributor Tim Biggam picked this ETF as his best ETF for 2020. Says Biggam, “…The ability to buy into an industry at the formative stages makes MJ a solid addition to the portfolio.”
However, cannabis stocks may be moving out of the formative stage. Four additional states approved legislation to legalize recreational marijuana. That brings the list to 15 states. And two states passed ballot initiatives to legalize medical marijuana. This now means 36 states have legalized medical marijuana.
Both of these trends are only going to intensify in the coming years, particularly as it appears the White House will have an occupant that is friendlier to the idea of legalizing marijuana on a federal level.
Invesco Dynamic Leisure & Entertainment ETF (PEJ)
The last of our vice ETFs to look at today is the PEJ ETF from Invesco. This may not be a fund that investors immediately associate with sin stocks. However, as the virus continues to limit entertainment options, more consumers are spending time viewing content and eating carryout food.
These are the two segments that dominate the holdings of the PEJ ETF. But these segments have been traveling in opposite directions this year. And even though two of the top six stocks held by the fund include Chipotle Mexican Grill (NYSE:CMG) and Domino’s Pizza (NYSE:DPZ), the fund is still down nearly 30% for the year.
However since the onset of the pandemic, the fund is up 63%, which may be a more accurate view of the fund’s performance. The truth is probably somewhere in between. From January 2015 until January 2020, the fund rose about 28% suggesting that the overall performance in 2020 may be an anomaly.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.
