netherlandsnl
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.

Rendement waar de wereld beter van wordt
Rendement waar de wereld beter van wordt
Duurzaam beleggen
Hoe regelgeving duurzaam beleggen stimuleert
Hoe regelgeving duurzaam beleggen stimuleert
De Europese Unie wil met een pakket nieuwe regels beleggingen stimuleren die een bijdrage leveren aan de strijd tegen klimaatverandering.
10-05-2021 | Visie
Kansen: herkennen van de beste klimaatvriendelijke beleggingen
Kansen: herkennen van de beste klimaatvriendelijke beleggingen
Wereldwijde decarbonisatie leidt tot duidelijke winnaars en verliezers, waardoor een gunstige omgeving ontstaat voor actief beheer.
06-05-2021 | Visie
The road to impact investing – a journey for insurers
The road to impact investing – a journey for insurers
Sustainable investing has risen to the top of insurers’ agendas – but how to make an impact with it?
05-05-2021 | Visie
Logo

Disclaimer

De informatie op deze website is uitsluitend bestemd voor professionele & institutionele beleggers.

Bevestig alstublieft dat u een professionele belegger bent en dat u de voorwaarden van deze website hebt gelezen en begrepen, en deze accepteert.

Niet akkoord