Thats the conclusion researchers at Princeton University and the University of British Columbia reached when they found that returns of sin stocks alcohol, tobacco and gaming outperformed their wholesome counterparts in the beverage, food and hotel/entertainment industries by 30 basis points per month between 1965 and 2004.
Investors that eschew sin stocks are giving up 3% to 4% in returns per year, said Marcin Kacperczyk, assistant professor of finance at the Sauder School of Business, University of British Columbia, Vancouver, one of the researchers on the study.
Mr. Kacperczyk and Harrison Hong, professor of Economics at Princeton, found that on average, 19% of sin stocks are held by institutions, compared with 22% for non-sin stocks in similar industries. Among institutional investors, pension funds, church organizations and university endowments invested 15% to 20% less in sin stocks than in the comparable stocks, while mutual funds, banks, insurance companies and hedge funds were slightly less discriminating, investing 5% to 10% less in sin stocks than in comparable stocks, Mr. Kacperczyk said. Alcohol, tobacco and gaming stocks also receive less analyst coverage, on average 2.1 analysts per stock, compared with 2.6 analysts covering stocks of a typical company.
Mr. Kacperczyk noted that before 1960, stocks of alcohol, tobacco and gaming companies were not considered sinful, adding the markets reflect social norms of the time.