Vice funds—a term that raises eyebrows and piques curiosity. In a world increasingly obsessed with ESG (environmental, social, and governance) investing, these contrarian funds double down on so-called ‘sin stocks’: companies in alcohol, tobacco, gambling, and weapons. But as Australia’s financial landscape evolves in 2025, is there a place for vice in your portfolio?
What Is a Vice Fund?
Vice funds are mutual funds or ETFs that deliberately invest in industries traditionally viewed as ‘unethical’ or controversial. Common sectors include:
- Alcohol (breweries, distilleries, pubs)
- Tobacco (cigarette and vaping companies)
- Gambling (casinos, online betting platforms)
- Defence and firearms (weapons manufacturers and military contractors)
Unlike ESG funds, which exclude these sectors, vice funds bet on the resilience and profitability of human vices. The most famous example globally is the USA Mutuals Vice Fund (VICEX), but similar vehicles exist in Australia and Asia-Pacific, often as part of broader ‘contrarian’ or ‘unconstrained’ strategies.
Why Invest in Sin Stocks?
While vice funds aren’t for everyone, they offer several investment rationales:
- Resilience in Downturns: Historically, alcohol and tobacco have proven defensive during recessions—consumption patterns tend to persist even as other discretionary spending falls.
- Cash Flow and Dividends: Vice companies often generate strong, stable cash flow and pay attractive dividends, appealing to income-focused investors.
- Global Market Demand: Despite increasing regulation, global demand for alcohol, gambling, and defence products remains robust, especially in emerging markets.
Example: In 2024, Tabcorp (ASX: TAH) and Treasury Wine Estates (ASX: TWE) both outperformed the ASX 200 during volatile quarters, buoyed by international expansion and resilient domestic demand.
Australian Attitudes and 2025 Policy Trends
In 2025, the Australian financial sector is navigating a clash between the rise of ESG mandates and the persistent performance of vice sectors:
- Superannuation Guidance: Major funds like AustralianSuper have expanded their ESG exclusions, but few have divested fully from gambling or alcohol due to member demand for returns.
- Gambling Reform: The federal government’s National Consumer Protection Framework for online wagering introduced stricter ad bans and deposit limits in 2024, but market analysts still project steady revenue growth for listed gambling firms.
- Tobacco Regulation: Plain packaging and vaping crackdowns continue, yet tobacco stocks like British American Tobacco (ASX: BTI) maintain healthy margins through overseas sales.
- Defence Spending: Australia’s 2025 Defence Strategic Review increased procurement budgets, boosting the outlook for domestic and international weapons manufacturers.
The result? While ESG funds dominate headlines, vice sectors continue to quietly reward risk-tolerant investors. However, public opinion is shifting—especially among younger Australians who increasingly prioritise ethical investing. Some platforms now allow investors to exclude vice stocks from their portfolios with a click.
Risks and Ethical Considerations
Investing in vice funds is not without risks, both financial and reputational:
- Regulatory Risk: Sudden tax hikes, advertising bans, or outright prohibitions can quickly erode profits. For example, the 2024 vaping ban caused a sharp sell-off in related stocks.
- ESG Backlash: As super funds and ETFs face pressure to divest from sin sectors, vice stocks could see reduced demand and lower valuations.
- Personal Values: Many Australians feel uncomfortable profiting from industries linked to addiction or harm. For some, vice funds are a non-starter, regardless of returns.
That said, others argue that vice companies are often better regulated and more transparent than their ESG-friendly peers, and that excluding them can leave portfolios exposed to sector concentration risks.
Should You Add Vice to Your Portfolio?
There’s no one-size-fits-all answer. Vice funds can offer diversification and defensive qualities, but they carry unique risks and ethical considerations. If you’re considering adding vice exposure, ask yourself:
- Does your investment strategy prioritise returns above all else?
- Are you comfortable with the potential reputational risks?
- How do vice stocks fit with your broader portfolio and values?
In 2025, Australians have more choice—and more information—than ever before. Whether you embrace vice or avoid it, the decision should be informed and intentional.
