Sin Index

The Sin Index includes a list of 30+ stocks of companies that sell a product related to various sorts of sins. Sin stocks often offer high entry barriers, price-inelasticity for their products and high margin businesses. Yet, sin stocks are under-loved and under-owned and therefore offer a unique source of alpha that can be harvested by smart investors in this area. There is an official Sin Index, which however is not tracked by any ETFs so far and thus remains effectively uninvestable. This portfolio aims to approximate the components that are in the Sin Index and thus offer investors a "proxy sin index investment product". In addition, there will be a discretionary overlay with regards to the cash position in order to optimise and profit from different market cycles. Cash will be limited to a maximum of 40% of the whole portfolio. The Sin Index includes owners and operators of casinos and gaming facilities, producers of beer and malt liquors, distillers, vintners and producers of other alcoholic beverages, and manufacturers of cigarettes and other tobacco products. The Sin Index attempts to capture at least two-thirds of the entire industry’s market capitalization. Due to the non-uniform weight distribution across entire industries, an equal-weighted methodology is used to adjust the weighting of component stocks. Individual component weightings are limited to 25% at semi-annual reviews for modified capitalization-weighted indexes. This modification prevents a few large component stocks from dominating the index and distorting an index return that is representative of an industry sector. The modified approach promotes portfolio diversification by retaining the economic attributes of capitalization ranking. The equal-weighted methodology ensures each component stock is equally represented in the index. This methodology is used when there is an especially wide divergence in the market values of those components. Quarterly rebalancing events are used to “re-set” the weighting of each component such that each component has an equal influence on the index performance.