The AdvisorShares Vice ETF has solid exposure to companies that often perform well in weaker economic conditions. Gambling, tobacco and alcohol companies depend on the long-formed habits of their customers rather than fluctuating economic conditions, meaning that they can see consistent performance regardless of broader macroeconomic trends.
- The AdvisorShares Vice ETF invests in products that perform well regardless of economic conditions
- Major holdings MGP Ingredients and Boyd Gaming have seen strong share price growth in recent months
- Opportunities lie ahead for the fund’s gambling and tobacco holdings
The AdvisorShares Vice ETF [VICE] holds companies that operate within the tobacco, alcohol and cannabis sectors. The fund aims to invest in products and services that people form habits around and will continue to find consistent pleasure from, regardless of economic conditions. Despite recent gains, the fund has declined 17.5% since the beginning of the year. It is up 6.2% over the past month.
The fund has a 6.85% holding in MGP Ingredients [MGPI], a producer and supplier of spirits and industrial alcohol used for food and non-food applications. The fund’s second-largest holding, RCI Hospitality [RICK], makes up just over 5% of the total fund and operates nightclubs, bars and restaurants across the US. Casino operator Boyd Gaming [BYD] has been allocated 4.78% of the portfolio and is the fund’s third-largest holding.
Alongside investing in several companies operating in the gambling sector, the fund has considerable exposure to the growing cannabis sector. Constellation Brands [STZ], the fund’s fourth-largest holding at 4.63%, has a 35.7% stake in cannabis player Canopy Growth. The cannabis sector saw substantial sales numbers over the Black Friday shopping period, and Biden recently approved new marijuana research legislation, which has boosted the industry.
Key holdings perform well despite a weak economic outlook
While consumers cut down on discretionary spending in the face of inflation, companies held by the Vice ETF nevertheless cater to those seeking emotional relief from the pressures of the current economic climate.
The share price for MGP Ingredients, the fund’s largest holding, has bounced 38% higher year-to-date as trading within the spirits sector remains strong despite the weakening economic outlook. The company reported strong third-quarter results, with sales rising 14% to $201.2m and gross profit rising to 3% year-over-year to $59.1m. Dave Colo, president and CEO of MGP Ingredients, noted that demand for the company’s premium, super premium and ultra-premium spirits brands remains strong.
Hospitality and gambling player Boyd Gaming [BYD], the fund’s third-largest holding, has lost 9.8% in the year-to-date and has remained flat over the past six months. This negative trend occurred despite the company reporting a rise in Q3 revenues as they jumped to $877.3 from $843.1m the year before. Boyd noted its Las Vegas operations performed well over the last few quarters, with core customer numbers continuing to grow.
The fund has a few investments that can be targeted for growth over the next few years. The gaming and gambling sector, where the fund has considerable exposure, is positioned to expand its operations as the regulatory environment improves in the US.
Since a ban that prevented states outside Nevada from allowing customers to bet on sports games was overturned by the US Supreme Court in 2018, sports betting has grown considerably across the US, with over half of states now allowing the practice. During the coronavirus pandemic, legal sports betting gained popularity, with states gaining from taxes on gamblers’ winnings.
Monarch Casino and Resort [MCRI], the fourth-largest holding of the Vice ETF at 4.56% of total holdings, has already targeted this opportunity through its BetMonarch mobile app, launched in May 2020. Low operating costs and an existing player database have allowed BetMonarch to achieve growth and profitability in its first year. The company’s share price has gained 9.8% year-to-date.
While some of the fund’s other key industries are in decline, opportunities still lie within the spaces. The global tobacco industry volume is expected to decline by 2% in the next year as customers try to shift away from smoking habits. British American Tobacco [BTI], the fund’s eighth-top holding, announced on December 8 that its full-year revenue guidance for 2022 is expected to grow from 2% to 4%.
Tobacco companies have been able to find alternative sectors to stimulate growth in recent years as core products face a slow decline. British American Tobacco’s Vuse business operates within the vapour market, which has been rapidly growing in recent years. Its Vuse Go product leads the US vapour market, is second in France and the UK, and is active in 12 markets worldwide.
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