Virtue in investment terms may be its own reward, but the evidence shows sin pays better.

Shares in industries with unsavory associations such as alcohol, tobacco and gambling have long-term track records of outperforming the rest of the market.

Maybe this is to compensate for the risk of regulation. Maybe it is a reflection of the unwillingness of so many investors to commit capital to industries where a certain amount of misery is an unavoidable byproduct.

Or perhaps it is just the addiction(s) talking.

Tobacco shares, for example, have beat the equity market by an annualized 4.5 percentage points in the U.S. over the past 115 years, according to a new study. British tobacco stocks have beat the market by 2.6 percentage points annually over 85 years. Those are the kind of margins hedge funds would, well, kill for.

"Much of the evidence that we review suggests that ... 'sin' pays," Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School write in the study, done as part of the Credit Suisse Global Investment Returns Yearbook. (

"Investments in unethical stocks, industries and countries have tended to outperform. For those for whom principles have a price, it is important to know the likely impact screening may have on both performance and diversification."

While the implications may be a matter of conscience, the data is pretty clear.

Over 81 years covered in an earlier study (, U.S. sin stocks (tobacco, gambling, alcohol) produced annualized excess returns of three to four percentage points a year. From 1985-2006 international sin stocks beat the market by roughly 250 basis points a year.

Buying stocks selected on ethical grounds may not lead to similar outperformance. The Vanguard FTSE Social Index Fund has underperformed the S&P 500 by about nine percentage points cumulatively since 2000. The social index fund tracks the FTSE 4Good US Select Index, which excludes the big three sin sectors as well as nuclear power, weapons and adult entertainment, as well as screening companies for inclusion on environmental, human rights, health and safety, labor standards and diversity criteria.