chinazh
Sustainable Investing Glossary

Sin stocks

Sin stocks are shares in companies involved in activities that are considered unethical, such as alcohol, tobacco, gambling, adult entertainment or weapons.

Ethical investors tend to exclude sin stocks, as the companies involved are thought to be making money from exploiting human weaknesses and vices. It is a relative concept, though, as different cultures have different opinions on what constitutes a sin. Although sin stocks usually include alcohol, for example, brewing beer or making a fine wine can be considered a noble tradition in various regions or countries in the world. And whereas some investors exclude weapons manufacturers on moral grounds, serving in the military can be considered an act of patriotism by others. 

Various studies show that sin stocks deliver better returns than stocks in general. There are several explanations for this. One of them is that sin stocks are undervalued because many investors avoid them. Another one is that sin industries pose increased litigation risk or reputation risk, for which investors are compensated with a risk premium.

A more recent explanation is offered by David Blitz, Head of Quantitative Research at Robeco, and Frank Fabozzi, Professor of Finance at EDHEC Business School, in their article ‘Sin Stocks Revisited: Resolving the Sin Stock Anomaly’ published in the Journal of Portfolio Management. They show that the outperformance of sin stocks can be explained by two Fama-French quality factors, ‘profitability’ and ‘investment’. The profitability factor means that stocks with a high operating profitability perform better, while the investment factor maintains that companies with high total asset growth perform worse. Sin stocks tend to have high exposure to both factors; cigarette makers, for example, enjoy high margins due to relative price inelasticity, and are restricted in how they can grow their assets.

Creating returns that benefit the world we live in
Creating returns that benefit the world we live in
Sustainable investing
透过ESG参与致力改善后疫情时代用工实践
透过ESG参与致力改善后疫情时代用工实践
荷宝最新的参与主题确保劳动者得到充分保护,以及企业对劳工问题承担应有的责任。
12-08-2021 | 市场观点
全球拉响生物多样性危机警报!
全球拉响生物多样性危机警报!
6月5日是世界环境日,由联合国设立并旨在促进全球环境意识、提高对环境问题的注意。
17-06-2021 | SI Opener
How climate change and Covid-19 changed the stewardship landscape
How climate change and Covid-19 changed the stewardship landscape
The stewardship landscape evolved rapidly in 2020.
22-04-2021 | Webinar