Vincent was different. By profession, he was a barber. But the guy was always scheming. One day, he was snipping away at my bangs (back when I had hair). That’s when he offered me a “business proposal.” He wanted to open a brothel in a northern Canadian mining town. “You have such an innocent face,” he said, “You would be the perfect guy to run it.”

I didn’t bolt from his shop. This was entertaining stuff for my 20 year-old ears. But I never went back to Vincent. Morally, he didn’t care where he put his money. He just wanted to make a profit, no matter what the cost.

Few people would have jumped at Vincent’s offer. But not everybody shares the same set of principles. Ethics can be different. Muslims, for example, won’t invest in banks. Others choose socially responsible funds. They won’t invest in industries such as gaming, tobacco and defense. Recently, I wondered what Vincent might buy if he built a portfolio of ETFs. Fortunately, there’s no Real Estate Income Trust for prostitution stocks.

But he still might prefer what many people shun. I wondered about defense stocks, gambling stocks, alcohol and tobacco. I came up with a portfolio of four ETFs.

State Street’s Aerospace & Defense ETF (XAR) and VanEck Vectors Gaming ETF (BJK) provide exposure to military and gambling stocks. Constellation Brands (STZ) brings in the alcohol. The iShares Global Consumer Staples ETF (KXI) is a broad consumer ETF with plenty of exposure to tobacco firms.

Rebalanced annually, they’ve given the S&P 500 a pretty thorough beating. They beat the world’s biggest index over the past 1 year, 3 year and 5 year periods. (Five years was the longest time period from which I could compare the combined results of the four ETFs)

Growth of $10,000 S&P 500 vs. Portfolio of Sin

1 Year 3 Years 5 Years
S&P 500 $10,560 $13,691 $21,185
Portfolio of Sin $11,191 $16,045 $30,188

Investors can’t buy a single ETF that tracks such stocks. But the International Securities Exchange created its own (Sin)dex. Between January 3, 2000 and September 16th, 2016, it averaged a compound growth rate of 14.4 percent per year. By comparison, the S&P 500 averaged a compound annual return of 4.3 percent.

In 2009, Harrison Hong and Marcin Kacperczyk published a paper on sin stocks for the Journal of Financial Economics. They explained why such stocks should beat the market. Many investors don’t want such holdings. Many pension fund and mutual fund managers realize that too. That’s why they often go light on sin stocks. This, according the authors, depresses sin stock prices. It makes them cheap, relative to business earnings and dividends.

The authors wrote, “The valuation ratios of sin stocks are on average about 15–20 percent lower than those of other companies.” They tested the performance of sin stocks (both with and without tobacco companies) between 1965 and 2006. They concluded that sin stocks beat the market by about 2.5 percent per year.

If they are cheap, and if dividend yields are high, their performance might align with Jeremy Siegel’s theory. In 2005, he wrote The Future For Investors, Why The Tried And The True Triumphs Over The Bold And The New. Less glamorous stocks, he says, don’t rise in price as quickly as popular growth stocks. But after dividends are reinvested, less glamorous stocks win.

Professor Siegel wasn’t referring to sin stocks specifically. But if their dividend yields are higher, the same theory might apply.

USA Mutuals introduced an actively managed fund that invested in sin stocks in August 2002. At first, they called it the Vice Fund. In July, 2014, they changed its name to USA Mutuals Barrier Investor fund (VICEX).

Between its inception and August 20, 2016, it earned a compound annual return of 10 percent. That compares to the 8.3 percent compound annual return for the S&P 500.

USA Mutuals Barrier Fund vs. Vanguard’s S&P 500 Index August 30, 2002 – September 21, 2016

USA Mutuals Barrier Fund vs. Vanguard’s S&P 500 Index

But sin didn’t always win. Over the past 5 and 10 years, the race was practically even. The Barrier Investor fund averaged a compound annual return of 14.2 percent over the past five years. Vanguard’s S&P 500 Index averaged a compound annual return of 14.5 percent. Over the past 10 years, the Barrier Investor fund averaged a compound annual return of 7.37 percent compared to 7.06 percent per year for the S&P 500.

But there’s something worth noting. Foreign stocks make up more than a quarter of the Barrier Investor fund’s holdings. On average, U.S. stocks have thumped foreign stocks over the past five and ten years.

U.S. Stocks vs Foreign Stocks Ending September 20, 2016

5 Year Compound Annual Return 10 Year Compound Annual Return
U.S. Stocks 14.5% 7.06%
Foreign Stocks 5.24% 2.09%

This might indicate that the Barrier Investor fund’s U.S. stocks have dusted the S&P 500.

Will sin stocks continue to beat the market? I don’t know. I prefer a more diversified portfolio of index funds. Seeking out sin stocks, specifically, reminds me too much of Vincent.

Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and The Global Expatriate's Guide to Investing: From Millionaire Teacher to Millionaire Expat.