Elevated risks in owning tobacco stocks
AP4 believes that rising long-term risks posed by greater regulation, among other things, will have a negative effect on tobacco company valuations in the future. These are risks that are determined to be incorrectly factored in today, and shares in tobacco companies are considered to be overvalued. Over time, tobacco companies therefore risk performing below the index. In view of this, in 2016 AP4 took the business decision to not own shares in tobacco companies.
Tobacco stocks historically very profitable
In Sweden and many other countries it is currently legal to produce and sell tobacco despite the high costs to society — costs that are seldom compensated by tobacco taxes.
Tobacco stocks have essentially outperformed the index through-out the entire 20th century, that is, they have performed better than the market as a whole. Tobacco stocks have therefore histori-cally been profitable to own and have given investors a relatively high and stable return.
Positive earnings contribution over time
Thus far, AP4’s business decision to not own shares in tobacco companies has made a positive earnings contribution. In 2017, as well, the active position has developed favourably.