A post-coronavirus economy is in sight and the world is more ready now than ever to emerge into normalcy. This means that now could be an opportune time to take a look at the best vice ETFs to buy and cash in on pent up demand for sinful behavior.
Vice funds typically hold what are casually referred to as sin stocks, including companies involved in businesses such as alcohol, tobacco, gambling, leisure and entertainment. Vice funds are unique in that they can have the defensive qualities of consumer staples but also the offensive growth potential of consumer discretionary stocks.
Here are 7 vice ETFs to buy as the world gets back to normal:
- AdvisorShares Vice ETF (NYSEARCA:VICE)
- Consumer Discretionary Select Sector SPDR (NYSEARCA:XLY)
- Invesco Dynamic Leisure & Entertainment (NYSEARCA:PEJ)
- Invesco Dynamic Food & Beverage ETF (NYSEARCA:PBJ)
- VanEck Vectors Gaming ETF (NASDAQ:BJK)
- VanEck Vectors Video Gaming and eSports ETF (NASDAQ:ESPO)
- ETFMG Alternative Harvest ETF (NYSEARCA:MJ)
Since the demand for some sin stocks, such as alcohol and tobacco, can remain relatively stable or even increase during recessionary periods, they earn the defensive label. But other sinful areas, such as gambling and entertainment, are often considered to be consumer discretionary or cyclical in nature. These are areas that could see big gains in a post-Covid world.
Vice ETFs To Buy: AdvisorShares Vice ETF (VICE)
Boasting a new ticker but the same focused vice strategy, AdvisorShares Vice ETF (NYSEARCA:VICE) appears primed and ready to take on a new world of sinful behavior.
As of Nov. 1, 2020, VICE, which was formerly ACT, took on it’s new ticker. This actively-managed ETF still invests in vice industries, such as alcohol, tobacco, e-sports and gaming. As such, VICE shareholders get exposure to sin stocks, such as recent top holdings, Boston Beer Company (NYSE:SAM), Turning Point Brands (NYSE:TPB) and LVMH Moet Hennessy (OTCMKTS:LVMUY).
The underlying investment philosophy that fund manager Dan Ahrens follows is to buy vice stocks that can perform in any environment, including recession. Ahrens seeks long-term growth as well, which makes VICE a long-term holding in addition to its defensive qualities.
Consumer Discretionary Select Sector SPDR (XLY)
If you want a vice ETF holding a broad selection of cyclical stocks, the Consumer Discretionary Select Sector SPDR (NYSEARCA:XLY), is a good way to do it.
It can be a mistake to assume that all sin stocks must be categorized as consumer staples. Yes, consumers will generally sin in all economic conditions. During hard times, consumers may continue buying alcohol (and maybe more of it, as we saw in 2020) but consumers like to sin in other ways during good times.
As the economy opens more in the post-coronavirus world, pent up demand for goods and services in the consumer discretionary sector has potential to grow faster than the broader market. Put simply, a stronger economy generally translates to a happier consumer, which generally translates to greater discretionary spending.
Consumers living in a mask-free world will have a compounding effect on this growth potential. This tends to support cyclical stocks, such as XLY top holdings Amazon (NASDAQ:AMZN), Home Depot (NYSE:HD) and McDonalds (NYSE:MCD).
Invesco Dynamic Leisure & Entertainment (PEJ)
In a post-coronavirus world, consumers will be ready to spend more on the leisure and entertainment industries. This potential sets up opportunities for investors to hold funds like Invesco Dynamic Leisure & Entertainment (NYSEARCA:PEJ).
A three-word phrase you’re likely to see in 2021, especially in the second half of the year, is pent up demand. Consumers are ready to return to a normal world of planning vacations, staying at hotels, going to theme parks and partying at casinos. PEJ is among the best vice ETFs to buy for this type of opportunity.
The PEJ portfolio consists of 30 stocks of companies in the leisure and entertainment industries, such as Walt Disney (NYSE:DIS), ViacomCBS (NASDAQ:VIAC) and Hilton Worldwide (NYSE:HLT).
Invesco Dynamic Food & Beverage ETF (PBJ)
Investors that want to play both offense and defense in a vice fund should take a look at Invesco Dynamic Food & Beverage ETF (NYSEARCA:PBJ).
PBJ tracks the Dynamic Food & Beverage Intellidex Index, which consists of 30 U.S. food and beverage companies, with top holdings such as Monster Beverage (NASDAQ:MNST), Keurig Dr. Pepper (NYSE:KDP) and Hershey (NYSE:HSY).
Stocks in the food and beverage industry have offensive and defensive qualities because consumers tend to buy these products in good times and in bad. Since 2021 can potentially be a year that contains qualities of both a weak and strong economy, PBJ could be a smart play that rides the fence of those opposing environments.
VanEck Vectors Gaming ETF
If you’re looking for a momentum play in a gaming fund, VanEck Vectors Gaming ETF (NASDAQ:BJK) is well worth your consideration.
The BJK portfolio seeks to replicate returns of the MVIS Global Gaming Index, which tracks a basket of stocks investing in casinos, hotels, gaming technology and gaming services.
In Q4 2020, BJK put up a three-month gain of 20.3%, beating the majority of funds in the consumer cyclicals sector. With the first half economic conditions of 2021 appearing to look similar to the second half of 2020, BJK could be primed for category busting returns in the foreseeable future.
But it could be the second half of 2021, when the global economy may begin to normalize, that pent up demand for gaming begins to take off. That’s why betting on these gains in advance could pay off.
VanEck Video Gaming and eSports ETF (ESPO)
Investors that believe gaming technology can continue its red hot 2020 performance may want to make that play now with the VanEck Video Gaming and eSports ETF (NASDAQ:ESPO).
ESPO attempts to mirror the performance of the MVIS Video Gaming and eSports Index, which represents 25 stocks of companies involved in video game development, e-sports and related hardware and software.
The kind of stocks shareholders will see in ESPO include technology bellwethers like Tencent Holdings (OTCMKTS:TCEHY), Nvidia Corp (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD).
ESPO put up a market-crushing 83.9% gain in 2020. Could the momentum carry forward? The coronavirus pandemic increased demand for mobile gaming and this industry appears to be here to stay for the foreseeable future.
ETFMG Alternative Harvest ETF (MJ)
If you’re looking for a resurgence of cannabis stocks in 2021, the ETFMG Alternative Harvest ETF (NYSEARCA:MJ).
In fact MJ could already be in the midst of a comeback now, if Q4 2020 is any indication. Although December was negative, the last three months of the year saw MJ jump by 39%. As is the case with the fund’s history, the price movement is almost certain to be much more volatile than the broader market.
As for the MJ portfolio, this cannabis ETF tracks the Prime Alternative Harvest Index, which consists of 33 stocks within the cannabis industry. The largest sub-sector of the portfolio, with an allocation of 44%, is stocks of companies related to cannabis production. The remainder of the fund is allocated to related industries, such as agriculture sciences and tobacco products, pharma and biotech and consumer products.