Recently, the stellar performance of tobacco stocks such as Philip Morris International Inc., and British American Tobacco Plc was promptly brought into justification for asset managers to hold onto their investments. However, in the recent years, a flurry of European pension funds and insurers have begun divesting their holdings, putting pressure on the share prices. In the previous years, BAT witnessed worst records with a flopping of 50 percent, because the U.S. Food and Drug Administration toughened its stance toward the tobacco industry. Moreover, Philip Morris slumped to 37 percent.
The MSCI World Tobacco Index has overcome with an impressive numbers of 1,437 percent from the end of 1999 through 2015, as compared with around 72 percent return for the broader MSCI World Index. However, since 2016, when momentum for tobacco-free portfolios finally started to take hold, the industry has underperformed the broader benchmark.
“Clearly, selling pressure from some investor classes who have decided that it is inappropriate to invest in tobacco for environmental, social and governance reasons will have been unhelpful for tobacco share prices, given the scale of some of the institutions concerned”, Investec analyst Eddy Hargreaves commented.
Bronwyn Kind, an Australian doctor who handles cancer patients, was shocked to discover in 2010 that her retirement fun fund was investing in tobacco companies. This prompted her to establish Tobacco Free Portfolios, a non-profit organization that encourages pension funds, sovereign wealth funds, banks and insurers to stop investing in tobacco.
“We don’t anticipate a sea-change back into more positive investor sentiment for tabacco in the nearer team,” said Hargreaves.