While discussing ETFs yesterday, today we will look at the other end of the spectrum: "sin" or "vice" stocks.
These stocks include those in the alcohol, cannabis, gambling, adult entertainment, and defense sectors. Market participants whose personal conviction allows them to invest in “sin stocks” can take advantage because they provide additional diversification.
Not only does the use of tobacco and alcohol remain stable, even during recessionary periods, but many of these companies also deliver robust dividend payments. Likewise, defense stocks usually outperform the growth of broader markets – such as the index – in difficult economic times.
With all that in mind, here are two Vice ETFs to consider:
1. Equity Adviser Vice ETF (ACT)
Current price: $ 24.83
52-week range: $ 16.16 – 25.85
Dividend yield (TTM trailing twelve months): 2.52%
Dividend distribution frequency: annually
Net expense ratio: 0.99% per year, or $ 99 on an investment of $ 10,000
The AdvisorShares Vice ETF (NASDAQ 🙂 which has 32 holdings, seeks concentrated exposure to primarily US-denominated stocks of alcohol and tobacco companies. ACT states that it only invests in cannabis-related companies that do federal business legally, according to the United States government.
It is essential to emphasize that in 2018 Canada was the first G7 country to legalize cannabis federally, i.e. nationally.
At the federal level, however, marijuana is illegal in the US and remains a Schedule I drug. On the other hand, the legal status of state-level marijuana depends on the laws of the individual state.
In other words, the legalized marijuana industry is still in its infancy, even in Canada, and is almost absent worldwide. Still, the legal cannabis market is expected to be worth over $ 70 billion by 2027. The medical segment is likely to have the largest revenue share of approximately 70%. And the rest will be recreational use by adults.
Requirements for listing on the bar or on the Toronto Stock Exchange (TSE) bar companies are prohibited from conducting commercial activities in countries where they would violate the law.
The industry breakdown of the exchange traded fund (by weight) is as follows: cannabis related (40.9%), alcohol (27.1%), alcohol with cannabis exposure (8.6%), tobacco with exposure to cannabis (8.6%), tobacco (5.80%) and restaurant and entertainment (9.0%).
The top ten holdings comprise approximately 60% of total net assets, amounting to nearly $ 10 million. ACT's three largest companies are Boston Beer Company (NYSE :), Thermo Fisher Scientific (NYSE 🙂 and Abbott Laboratories (NYSE :).
The fund has declined by 0.96% to date, ie practically flat. However, earlier in March ACT hit a low of $ 16.16 and it has risen more than 50% since then, so $ 1,000 invested in ACT in early spring would now be worth over $ 1,500.
2. ETFMG Alternative Harvest ETF
Current price: $ 12.94
52-week range: $ 8.81 – 29.25
Dividend yield (12-month TTM trailing): 7.57%
Dividend distribution frequency: quarterly
Expense Ratio: 0.75% per year, or $ 75 on an investment of $ 10,000
ETFMG Alternative Harvest ETF (NYSE 🙂 which has 36 stocks, follows the Prime Alternative Harvest index.
This benchmark index measures the performance of companies benefiting from global initiatives to legalize medicinal and recreational cannabis. Like ACT, MJ does not invest in U.S. or foreign companies whose business activities would be illegal under applicable federal or state law.
The sector's breakdown (by weight) is as follows: pharmaceuticals (56.4%), tobacco (24.7%), biotechnology (9.1%), fertilizers and agrochemicals (3.1%) , paper products (2.6%), Agricultural products (2.4%) and Asset Management & Custody Banks (0.6%).
The top ten stocks make up nearly 60% of total net assets, which is approximately $ 555 million. The three largest companies of MJ are GW Pharmaceuticals (NASDAQ 🙂 Cronos Group (NASDAQ 🙂 and Canopy Growth (NYSE 🙂 .
British GW Pharmaceuticals, a leading cannabinoid biotech company, is MJ & # 39; s largest stake, accounting for 11.1% of its assets.
A 2018 United Nations report revealed that Britain is the largest producer and exporter of legal cannabis in the world. Virtually all cannabis exports in the UK are contained in one drug, Sativex, which is produced by the British GW Pharmaceuticals. It is used to treat spasms in patients with multiple sclerosis.
Currently fluctuating around $ 132.10, GWPH shares rose from about $ 10 in 2013 to a record high of $ 196 in May 2019.
MJ also owns shares of the companies that provide additional products and services to the cannabis companies, including Scotts Miracle-Gro (NYSE 🙂 known for its fertilizer products.
So far in the year, MJ has fallen by about 24%. However, since the end of March, the fund has risen more than 50%.
Bottom Line
Market participants may reduce the volatility of investing in individual stocks by investing more of them or in an ETF. And thematic funds like ACT or MJ can help investors build a diversified portfolio. As always, it is essential to conduct further due diligence before investing in an ETF.
