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Sector Watch: Wine, Beer, and Spirits

The stocks of companies that produce and distribute alcoholic beverages have dramatically out-performed the broader market both in recent years.  There are many factors that can lead to the relative out-performance of one sector.  Surprisingly, however, so-called ‘sin stocks,’ including those of companies that produce and distribute alcohol, have a long history of delivering high returns to investors.  Sin stocks tend to fall into the ‘value’ category, but even after accounting for the well-known value premium, a 2005 study, titled The Price of Sin: Effects of Social Norms on Markets, found that ‘sin stocks’ provide additional returns that cannot be explained by the value premium alone.  The study finds that this out-performance is both substantial and statistically significant.  The Folio Investing Wine, Beer, and Spirits Folio demonstrates that this out-performance has persisted in recent years, too.

The 2005 study concluded that the ‘sin stocks’ tend to sell at a discount, and subsequently provide excess returns because of a social stigma associated with investing.  The authors relate this effect to the related studies showing that very popular firms which are heavily followed in the media (often referred to as glamour stocks) tend to under-perform.  Their conclusion is that social norms are such that many investors and, in particular institutions, avoid investing in these stocks with the result that they are consistently under-valued.

Investors who wish to exploit this anomaly may want to have a look at a portfolio that focuses on alcoholic beverages, such as the Wine, Beer, and Spirits Folio.


Over the three years through mid-October 2011, the Wine, Beer and Spirits Folio has returned 53.46% as compared to 42.42% for the S&P 500, including reinvested dividends.  The chart bellow shows the funded performance of this Folio vs. that of the S&P 500.

aeg Source: Folio Investing

The out-performance of these stocks has come with substantial volatility, evident in the chart above.

The S&P 500 has returned less than 1.2% per year over the five-year period through Mid-October.  By contrast, the Wine, Beer, and Sprits Folio returned 9.1% per year over this same five year time frame.  This substantial advantage in return is no doubt partly due to the fact that the demand for consumer goods such as alcoholic beverages tends to be fairly insensitive to broader market declines.

Industry Overview

The Wine, Beer, and Spirits Folio holds equal allocations to firms based in a number of different countries, and many of them sell their products beyond their borders.  Some of these firms will be familiar to most investors (Heineken (HINKY), Molson Coors (TAP), Anheuser Busch InBev (BUD)).  Others, such as Femsa (FMX), are not household names in the U.S. but serve substantial markets in other countries.

The global market for alcoholic beverages is expected to reach $1 Trillion by 2014, corresponding to consumption of about 210 Billion liters.  The major growth in consumption is expected to be in emerging markets, although EU countries currently comprise 57% of the global market.

Portfolio Holdings

The Wine, Beer and Spirits Folio consist of the largest companies principally engaged in the manufacture, sale, and distribution of wine, beer and spirits.

Symbol Company Weight
ABV Companhia De Bebidas Das Amers Adr Pfd 5.55%
BEAM Beam, Inc New 5.55%
BF.A Brown Forman Corp Cl A 5.55%
BF.B Brown Forman Corp Cl B 5.56%
BORN China New Borun Corp Adr 5.55%
BREW Craft Brew Alliance, Inc 5.56%
BUD Anheuser Busch Inbev Sa/Nv Adr 5.55%
CCU Compania Cervecerias Unidas Sa Adr 5.55%
CEDC Central European Dist Corp 5.55%
DEO Diageo P L C Adr New 5.56%
FMX Fomento Economico Mexicano S.A.B. De Cv 5.56%
HINKY Heineken Nv Adr 5.56%
SAM Boston Beer Inc Cl A 5.55%
SBMRY Sabmiller Plc Sponsored Adr 5.56%
STZ Constellation Brands Inc Cl A 5.56%
TAP Molson Coors Brewing Co Cl B 5.56%
VCO Vina Concha Y Toro S A Adr 5.56%
WVVI Willamette Vy Vineyard Inc 5.56%
Source: Folio Investing

[Note: The holdings are re-evaluated and updated (as needed) on a quarterly basis.]


Investors considering a specific sector investment either expect that the sector is likely to out-perform, provide important diversification benefits, or are seeking a specific type of return (income vs. price appreciation, for example).  This profile is not intended to render an opinion as to the probability of future out-performance, beyond noting that alcoholic drinks stocks tend to be classified as value stocks, which have historically provided returns beyond broad stock indexe returns.  In addition, there is research which suggests that ‘sin stocks,’ such as those of alcoholic beverage makers, also tend to out-perform.  The Wine, Beer, and Spirits Folio has provided high returns over an extended period, consistent with the research.


The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services.

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