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Sin stocks (vice)

✕ Avoid

Fixed basket — MO, PM, RAI, LO, BF-B, STZ, TAP, LVS, MGM, WYNN, CZR, PENN

Own the companies most investors avoid: tobacco, alcohol and gambling. The theory is that shunned stocks are underpriced, so they pay a premium to those willing to hold them.

Tested offline (manage.py rolling_backtest) — no in-app backtest.

How it works

An illustration of the rules on made-up prices, not real data.

Long-run result — 2015–2026, point-in-time S&P 500 members

Annual return

3.5%

SPY 13.8%

Worst drawdown

-55.1%

SPY -33.7%

Trailed SPY by ~10%/yr with a deeper drawdown; the real vice fund (VICEX) lagged SPY by ~4%/yr over 24 years. Even consumer staples did better.

Growth of $100,000 vs the same amount in SPY, 2015–2026

From the latest backtest run (to 2026-10-19): 3.6%/yr vs SPY 13.6%/yr; worst drop -55.1% vs -33.7%. Log scale, so equal percentage moves look the same size. Hover for values.

Rules

  1. Every S&P 500 member in tobacco, brewers, distillers/vintners or casinos & gaming
  2. Held only while in the index; equal weight
  3. Rebalance each April

Assessment

  • + Decades of academic evidence of above-market returns (Hong & Kacperczyk 2009)
  • + Addictive products, steady cash flows and big dividends
  • − Later research says the premium is just profitability and low investment (Blitz & Fabozzi 2017) — cheaper to get via a quality fund
  • − Regulation and litigation risk; tobacco volumes in long-term decline
  • − Casinos are cyclical and were shut down in 2020