The Unethical Portfolio

Before you continue reading I  want to emphasize that the portfolio below is no recommendation to buy or sell the mentioned securities. I’m no investment advisor. Please do your own due diligence.

Below you find a portfolio of 10 stocks that can be labelled as “unethical”. These “sin”-stocks produce goods and services that are legal, but still many institutions are barred from investing in them due to ethical reasons. But you as a private investor can invest without any considerations, of course depending on your own ethical standards.

I make an “unethical” portfolio because sin-stocks have historically outperformed the market substantially, something I explained in this article. The most obvious unethical industries include tobacco, alcohol, arms producers, gambling, cannabis and sex. In the US, tobacco stocks have been the best performers over the last century, while alcohol stocks have been the best performers in the UK. There is of course no guarantee that they will continue to outperform, but I believe they will, hence this portfolio of ten “unethical” stocks. This is a fairly concentrated portfolio.

This is the current portfolio (start of the portfolio is 3rd of July 2020):

Return %
Date Buy Price per (not including
Stock Ticker Exchange included price 28th of September dividends)
Philip Morris PM New York 3rd of July 2020 70.46 76.31 8.3
Raytheon Tech. RTX New York 3rd of July 2021 61.79 58.89 -4.7
Diageo DGE London 3rd of July 2022 2690 2675 -0.6
Swedish Match SWMA Stockholm 3rd of July 2023 674.8 734.8 8.9
Hershey HSY New York 3rd of July 2024 129.86 140.41 8.1
Heineken HEIA Amsterdam 3rd of July 2025 82.56 77.24 -6.4
Altria MO New York 3rd of July 2026 39.4 38.95 -1.1
Galaxy Ent. 0027.HK Hong Kong 3rd of July 2027 54.7 52.25 -4.5
Constellation Brands STZ New York 3rd of July 2028 185.8 185.42 -0.2
Pernod Ricard RI Paris 3rd of July 2029 142.45 135.95 -4.6

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This is a long-term portfolio and I expect few changes. At 31st of December the portfolio is rebalanced back to equal weighting. Any dividends are reinvested in the same stock. Currency movements are ignored as it depends on your place of residence, wherever that may be.

Here’s my short reasoning for inclusion:

Raytheon Technologies (RTX, NYSE)

Raytheon Technologies (hereafter referred to as RTX) is an aerospace & defense company located in the US. Raytheon is the third-largest listed defense company behind Lockheed Martin (LMT) and Boeing (BA). The company is a result of the merger between Raytheon and United Technologies. The former United Technologies was more exposed to civil aerospace, while Raytheon was a defense contractor. However, the exposure to civil aviation is much less for RTX compared to Boeing. Raytheon brought in the arms, intelligence and space production, for example known for its Tomahawk missiles.

RTX has recovered much less than the broad market since the bottom in March, most likely due to its aviation exposure. I believe RTX offers the best risk/reward among the defence contractors.

Swedish Match (SWMA, Stockholm)

Swedish Match AB is based in Stockholm, Sweden, and its main listing is on the Stockholm Stock Exchange (Ticker: SWMA).

Swedish Match is divided into snus and moist snuff, other tobacco products (mainly chewing tobacco and cigars) and lights (matches, lighters and complementary products). This is a highly profitable and asset-light industry. The company has managed to grow the dividend at 7.5% annually, and at the same time reduced outstanding shares 32%. Growth is mainly organic, and almost all cash is handed back to shareholders.

The market is growing; more and more people use snus in its home markets in Scandinavia. The company could be an acquisition target – rumors have been circulating for years.

Hershey (HSY, NYSE)

Hershey might not be regarded as a sin stock, but nevertheless makes products (candies and chocolate) that is not exactly healthy. I believe this is a defensive pick. Their brand has led to solid long-term performance, and I expect this to continue.

I’m long the stock because of these reasons:

  • Hershey has been in existence for 125 years, and outperformed S&P 500 massively in most of the decades. Return on equity (ROE) over the last decade is 72% while return on invested capital (ROIC) is 23%. These are solid numbers. Because of its solid business it trades at 16 times book value, thus you invest at only 4.4% ROE.
  • One of the major shareholders are the Milton Hershey School Trust, controlling about 80% of the votes, but only 26% of the shares (thus family-controlled).
  • Intangible assets and brand.
  • Cost advantage.
  • Hershey’s dominance in the U.S. confectionery industry is illustrated by the fact that it holds about 45% share of the chocolate aisle compared with about 30% for its closest competitor, privately owned Mars/Wrigley.

Heineken (HEINY, OTC)

Heineken is a Dutch brewer. While there are cheaper brewers out there, Anheuser-Busch InBev is for example much cheaper, I consider Heineken better managed and focused on long-term value creation. Heineken is majority-owned by the The Heineken family via a holding company.

  • Heineken is the world’s second biggest brewer, after Anheuser-Bush InBev (of which Altria owns 10%).
  • The global brewers have a cost advantage over smaller rivals.
  • Heineken has the best ROE and ROIC among the global brewers.
  • It has underperformed the S&P 500 over the last decade, despite solid operational metrics and share price compounding at 10% annually.
  • I expect Heineken to outperform the market over the next decade.
  • 50% is owned by a holding company owned by the Heineken family.

Galaxy Entertainment (0027, Hong Kong)

Galaxy Entertainment Group (GEG) is one of the world’s leading resorts, hospitality and gaming companies. It primarily develops and operates a large portfolio of integrated resort, retail, dining, hotel and gaming facilities in Macau. The Group is listed on the Hong Kong Stock Exchange and is a constituent of the Hang Seng Index. Macau is the equivalent of Las Vegas. Market cap is 230 billion, about 30 billion USD.

Typical in Asia the balance sheet is very conservative: Per 31 December 2019 cash and liquid investments were 20 billion HKD and an equal amount as debt. However, most of the debt is working capital, there is no long-term debt. By investing you get to own a substantial net cash position.

Despite operating with minimum leverage, Galaxy has managed to average 23% return on equity over the last ten years. Average return on invested capital (ROIC) is 18%. It currently trades at 3.1 times book value, indicating you get ROE of 7.5% (23 divided by 3.1).

Perhaps needless to say, but Covid-19 has cut income drastically, but this is expected to be temporary. I expect things to return to “normal” quite soon, and Galaxy will again be a very profitable company.

Pernod Richard (RI, Paris)

Pernod Ricard SA is a French family-controlled company that produces and sells wines and spirits worldwide. Their spirit brands are well know and include Absolut Vodka, Ballantine’s, Chivas Regal, Royal Salute, The Glenlivet Scotch whiskies, Jameson Irish whiskey, Martell cognac, Havana Club rum, Beefeater gin and Malibu liqueur.  Their wine brands include Jacob’s Creek, Brancott Estate, Campo Viejo, and Kenwood wines.

Pernod Ricard has a history that goes over two centuries back, and they have a history of managing their brands very well. I prefer family-controlled companies.

Despite being a very mature business, spirits are still growing at 4% in developed markets, but much faster in so-called emerging markets, like for Example China. Especially the premium brands do well in Emerging Markets, which fits both Pernod and Diageo.

Constellation Brands (STZ, NYSE)

Constellation Brands produces, imports, and markets beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. It was founded in 1945 by Marvin Sands, and the Sands family is still involved in the day to day operations. Constellation has dual stock listing, where B-owners (among them the Sands-family) have a 10-1 voting advantage over class A owners. However, the a-owners have a bigger share of the dividends and the undistributed earnings.

Constellation invested 4 billion USD in the Canadian cannabis producer Canopy Growth. This has thus far turned to be a bad a lousy investment with loss after loss. Despite this, I believe their moat is substantial and include the stock in the portfolio.


(I’m long Philip Morris, Hershey, Altria and Diageo.)

Disclosure: I am not a financial advisor. Please do your own due diligence and investment research or consult a financial professional. All articles are my opinion – they are not suggestions to buy or sell any securities.