Trustnet Magazine Issue 23 November 2016 | Page 12

/ VICES /

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trustnetdirect.com

trustnetdirect.com

PERFORMANCE OF INDICES SINCE 1994
4,000%

FTSE 350 Tobacco (3372.28%)
FTSE 350 Beverages (1045.52%)

3,500%
3,000%
2,500%
2,000%
1,500%
1,000%
500%
0%

Jan16

Jan14

Jan12

Jan10

Jan08

Jan06

-500%
Jan04

relevant to them,” he added.
“It starts conversations about
investing and when people see
numbers like those, it makes them
sit up and say ‘wow’. It reminds
me of spin-offs – I’m from Hull so
when Kingston Communications
was spun-off, we all bought
shares in it – not because we
thought it was a particular ly good
investment, but because we had
that emotional attachment.”
However, both advisers say that
anyone planning to invest in these
areas should only do so as part of a
more diversified strategy.

Jan02

so tobacco continues to make a lot
of headway.”
“It is a similar situation for
alcohol brands – they are seen as
‘cool’ and are making headway
with the growing middle class in
emerging markets.”
In an age where not enough
people are putting money away
for their retirement, Chris Wise,
investment director at Gemmells,
says the option of profiting from
your vices also helps to get people
interested in investing.
“It’s good because many people
invest in what is emotionally

Jan00

gains they have seen over the past
20-odd years.
However, two financial advisers
say investing in these sectors isn’t
the worst tactic.
“While cigarettes are being taxed
to the hilt in the West, tobacco
companies have established
markets in the developing world
in countries where they don’t have
the anti-smoking culture like they
have over here,” said Ben Willis,
head of research at Whitechurch
Securities.
“Smoking is seen as more
aspirational in these countries

Jan98

It is worth remembering that past
performance should not be used as
a guide to future returns, however,
and there is no guarantee that
tobacco and beverage stocks can
continue to generate the sort of

Willis also points out one of
the main reasons why tobacco
stocks were able to generate such
spectacular returns over the
period in question was because
they rose from such a low base.
Numerous court cases in the
late 1990s ended with many
of these companies forced to
pay out billions of dollars in
compensation, which hammered
share prices.
He adds that rather than hoping
to see the same returns from
tobacco, investors may wish to
look at other battered sectors that
are hoping to rebound.
“You want to have some money
in the banks if you are investing
over 20 or so years because at
some point, they will have to
recover and when they do they
are really going to take off,” he
finished.
While hoping to see the banks
do well in the post-financial
crisis world comes with its own
unique stigma, for someone
who has made a career out
of antagonising others, Liam
Gallagher may have found the
perfect place for his money.

“You shouldn’t limit yourself to
these sectors, you’ve got to invest
in others as well,” Willis added.
“For example, more smoking
in emerging markets will lead to
greater demand for healthcare
while the growth in the middle
classes will require greater
infrastructure spending and you
wouldn’t want to deny yourself
the opportunities generated from
these trends.”

Jan96

NO GUARANTEE

“Cigarettes
are being taxed
to the hilt
in the West,
but tobacco
companies have
established
markets in the
developing
world”

Jan94

better place to invest it than in the
stocks that would have profited
from his continued indulgence?
Data from FE Analytics shows
this would have been a very
lucrative strategy over the
period in question. The FTSE 350
Tobacco index has made 3,372.28
per cent since the start of 1994,
with annualised returns of 18.77
per cent. Assuming Gallagher
invested the annual cost of
smoking one pack of cigarettes
a day into the FTSE 350 Tobacco
index at the mid-point of every
year from 1994 onwards, the
£43,422.15 he would have saved
by not smoking would have
increased to £334,347.36.
The returns on alcohol haven’t
been quite so spectacular
over this period: the FTSE 350
Beverages index (which also
includes some exposure to softdrink manufacturers) has made
1045.52 per cent since the start
of 1994, with annualised returns
of 12.27 per cent. However, the
larger amount of money invested
means it would have created a
much higher sum in terms of
monetary value. Again, assuming
Gallagher invested the annual cost
of drinking five pints of lager a day
into the FTSE 350 Beverages index
at the mid-point of every year from
1994, the £103,312.5 he would
have saved by not drinking would
have increased to £453,583.67.
Combined with the money
made from investing into tobacco
stocks, this would have made
Gallagher £787,931.03 better off.

Source: FE Analytics

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