Tobacco and alcohol might be bad for your physical health, but they could be good for your financial health.
Dan Ahrens, the chief operating officer at AdvisorShares, believes that vice stocks — companies that operate in industries considered unethical or immoral — can be a valuable investment. Ahrens has over 25 years of experience with vice stocks and oversees six AdvisorShares ETFs, including the AdvisorShares Vice ETF (VICE). In a recent interview with Business Insider, Ahrens addressed the stigma surrounding vice stocks and shared seven of his favorite companies in the space.
Consider investing in vice stocks for their recession-resistant nature. “People continue to drink, smoke, gamble no matter what’s going on with the economy,” Ahrens said. In other words, demand for vice products is relatively inelastic, staying consistent in both good and bad times. In fact, recessionary environments might even see heightened indulgence in vice products: one study found that alcohol consumption was elevated during the Great Financial Crisis. As a result, vice stocks may experience less impact from an overall market downturn.
More than just beer and cigarettes
There’s also a lot more to vice investing than just tobacco and alcohol stocks.
Advertisement
“The word ‘vice’ can have a very wide berth. It can mean a lot of things to a lot of different people,” Ahrens said. “It could be habits, things that people like to enjoy.” Vice investing can span across a variety of consumer staples such as food, beverage, and gaming.
Ahrens is particularly bullish on gaming, both video games and gambling. “Gaming, and all types of online communication, is huge and here to stay,” Ahrens said.
The video game industry is getting a boost thanks to the ubiquitous tailwind of AI. AI technologies are enriching video game features and sending graphic card producers’ stocks way up (before Nvidia became known for supplying data centers with GPUs, it was known for its video game graphics cards). He pointed out China as a specific geography with promising video gaming growth prospects.
Ahrens also sees fast food restaurants fitting under the overall umbrella of vice. In some people’s eyes, indulging in too much junk food can certainly be a bad habit. And in terms of being recession-resistant, consumers are likely to increase their fast food or fast-casual intake as they search for cheaper options when dining out.
Advertisement
The best ways to invest in vice
Investors looking to increase their exposure to vice may be pleasantly surprised to find out that their portfolios likely already have some exposure to these so-called “sin stocks.”
“Tobacco stocks and alcohol stocks and other similar stocks are in all the major index indexes in the United States,” Ahrens said. “They are in most people’s pension plans.”
For example, Philip Morris International (PM), the parent company of Zyn nicotine pouches, is a member of the S&P 500, along with several other tobacco companies. Gaming and hospitality companies such as MGM Resorts (MGM), Las Vegas Sands (LVS), Caesars Entertainment (CZR), and Wynn Resorts (WYNN) also make the list. By purchasing a share of an S&P 500 index fund, investors are inadvertently already exposed to vice stocks.
For those who want to increase their allocations to vice, Ahrens recommends these seven stocks spanning the alcohol, tobacco, gaming, food, beverage, and broader consumer industries. They are all constituents of the AdvisorShares Vice ETF (VICE).