Sin stocks are investments in companies that are at odds with traditional religious values: companies in trades like arms, gambling, tobacco, alcohol, and pornography.
The argument for sin stocks is two-fold: firstly, that everyone should be free to choose to sin (as many nations have secular laws); and secondly, that sin stocks remain stable and offer returns even in harsh economic environments (in fact, they can even increase in returns).
There are problems with both these arguments.
The Ethical Problem
The Sin Are Getting Worse
The Orlando massacre is one of several recent, horrifying events to shock the world. In the worst shooting in U.S. history, a gunman opened fire on popular Florida LGBT club Pulse, killing 49 people and injuring another 53. It was a devastating loss in all aspects: a loss of life, of hope, and of sense. Unless, however, you’re a gun company; in that case, this massacre and others are wins.
When the stock market opened on the Monday after that terrible event, shares in Smith & Wessen and Sturm Ruger – two major American gun companies – had skyrocketed. The same thing was witnessed after the 2012 Colorado shooting, too. In an otherwise steady market, sin stocks are among the few outperformers: Smith & Wessen went up by a huge 37.9% in the past year.
This is because massacres like the one in Orlando are on the rise. When people fear for their safety, they buy guns. Whether this is due to sudden paranoia about the right bear arms being taken away or a simple, primal urge to be the scariest thing in the forest, fear makes people want guns.
The truly repulsive thing is that these particular companies aren’t just profiting from fear and panic; they’re causing it. Spokespeople for the NRA will spread fear and and exaggerate threats to security; whether they’re rallying people against Islam or gangs the effect is the same; more guns are bought. We are in the midst of an endlessly climbing cycle of gun panic-and-profit.
The Good Can’t Fight Back
The USA Mutuals Barrier Fund (VICEX) is one of the only explicit “vice funds” in existence. Gerry Sullivan, a portfolio manager there, has explained that the reason the fund is so competition-resistant is that the corruption of the companies it invests in is so complete: any average Joe “could start a microbrewery tomorrow,” but would quickly find their growth and profits curbed by government regulation.
Whether by mega-corporate status or corruption, big sin stock companies are less restricted in the global economy. We can all agree that even if they’re doing this legally, it certainly isn’t ethical.
When choosing new investments, it’s often easier for fund managers not to factor ethics into their line of enquiry. That’s why we recommend using a specialist ethical fund or fund management firm if ethical investing is important to you.
The Problem of Categorisation
There is also a problem with the very categorisation of “sin stocks” and “vice funds”. Creating an image of the “bad” can make non-sin stocks seem good by comparison, when they might actually be even more destructive. For example, Coca-Cola’s pockmarked history of water control and pollution in developing countries is nothing short of megalomaniac and wrong; but the company isn’t a sin stock.
If water pollution isn’t a sin stock, can it really be so bad? The creation of categories like this affects our perception of ethical investment. We think the burden of proof should be on companies to be good, not bad. In ethical investment this is called ‘positive screening’. You can check out our criteria for a ‘green fund’ here.
Why Should I Care?
We’re sure you would agree that “the greatest good for the greatest number” is a reasonable principle to have. With the ever-increasing rise of oligarchies around the world and treaties like the Trans-Pacific Partnership Agreement and the Transatlantic Trade and Investment Partnership protecting corporations over citizens, the existence of sin stocks and their sinful shareholders leaves us with a small question: is it possible that if we admit we are ruled by corporations, we could burden them with social responsibility?
It’s up to investors to drive this change – not just for people in developing worlds you have no connection to, but for your own future. Sin stocks aren’t just a stable back-up plan anymore; they’re a driving force in the global economy. It’s time to take a stand.
What can I do?
Many funds that include sin stocks don’t explicitly mention it. They might be listed under consumer goods or industry (e.g. defense). Unless your investment is written as VICEX there’s no way to know for sure that you’re not investing in arms or tobacco.
Check with your portfolio manager whether or not you’ve invested in sin stocks without realising it. If you’re looking to make future investments and aren’t sure who to trust, why not get in touch with our team of experts?.