On the basis that a pack of cigarettes has cost an average of £5.50 over the past decade, they would have saved £167.41 a month by not smoking.
If they had invested that every month for the last 10 years in the FTSE 350 Tobacco index, they would be both healthier, and have £54,163.25 in their back pocket by now. This represents a profit of £34,074.25.
The study is a particular incentive for yours truly, who is currently nine days without a cigarette – and counting.
There is not a fund or ETF that invests exclusively in tobacco stocks, but there are a number of well-known tobacco companies that investors would have been wise to back 10 years ago.
British American Tobacco and Imperial Tobacco are up 786.84 and 266.32 per cent over the last 10 years respectively.
If smokers had put aside their cigarette money and invested it on a monthly basis in BAT, they would now be sitting on £63,744.96.
Performance of stocks over 10yrs
Source: FE Analytics
While tobacco companies are generally viewed as defensive, dividend payers, very few sectors can match the FTSE 350 Tobacco in the total return stakes over the last decade.
This point was raised by FE Alpha Manager Jan Luthman at the recent Liontrust annual conference. He said people only need to look at the sector's performance against that of miners and banks over the last 10 years to see how wrong that assumption is.
"Boring old tobacco has absolutely battered them. I think if there was a purely tobacco-focused fund in the market, it would have wiped the floor with its competition," he said.
FE Analytics data illustrates Luthman’s point; over 10 years the FTSE 350 Tobacco index has outperformed every sector in the IMA universe, with returns of exactly 573 per cent.
The IMA UK All Companies sector has returned 155.51 per cent over this period, while IMA Global Emerging Markets – the best-performing sector over the last decade – has fallen short of the index by more than 200 percentage points.
Performance of index and sectors over 10yrs
| Name | 10yr returns (%) |
|---|---|
| FTSE 350 Tobacco Gross Gross | 573.00 |
| IMA Global Emerging Markets | 369.88 |
| IMA European Smaller Companies | 324.14 |
| IMA China/Greater China | 311.94 |
| IMA Asia Pacific Excluding Japan | 304.82 |
| IMA UK Smaller Companies | 245.92 |
| IMA Asia Pacific Including Japan | 203.36 |
| IMA North American Smaller Companies | 176.71 |
| IMA Europe Excluding UK |
172.39 |
| IMA Specialist | 165.18 |
| IMA Technology & Telecoms | 164.87 |
| IMA UK All Companies | 155.61 |
Source: FE Analytics
Among the biggest fans, and indeed beneficiaries, of tobacco in recent years has been star manager Neil Woodford. His £12bn Invesco Perpetual High Income fund continues to hold British American Tobacco, Imperial Tobacco and Reynolds American in his top-10, which have a combined weighting of 16 per cent.
FE Alpha Manager Francis Brooke’s Trojan Income portfolio is also currently overweight tobacco. It was announced earlier today that his £1bn fund is set to soft-close later this year.
Of course, past performance is not a guide to future performance, and there is no guarantee tobacco will return anywhere near as much in the next 10 years.
Luthman believes tobacco has probably had its day, but thinks pharmaceuticals – another income-paying sector that is deemed as "defensive" by the masses – could be the next big thing.
Chris Spear, managing director of Spear Financial Limited, is a big fan of tobacco and thinks rumours of its demise are premature.
However, he thinks an old favourite of the past is more likely to shoot the lights out over the next 10 years.
"Everyone is saying that tobacco is on the way out, but I don’t believe it," he said.
"Regions like Africa, south east Asia and South America are growing and their demand for tobacco is growing. I think over the next 10 years there will be a continuation of significant growth in the sector."
"However, if there was one sector that I would have a bit of fun with over the long-run, it would be technology."
"I think we have all learnt our lesson – well I hope we have – that you can’t just invest in one company that has a dominion over the market."
"You could look to buy smaller companies, which have the potential to be snapped up by the bigger ones. Take a company such as Google – it hasn’t only seen organic growth, but helped by buying smaller companies that have a niche component."
"It may get to the stage where you are holding a tablet instead of a cigarette," he joked.
Richard Hunter, head of equities at Hargreaves Lansdown, remains a big fan of tobacco – but not as a high-growth play.
He commented: "While the demise of the tobacco industry seems inevitable, this could be decades away."
"In the meantime, the situation in developed countries – where government measures are in place – isn't mirrored in less developed countries, where regulation has not yet taken a grip. Even when it does, the implementation is likely to be slower."
"If the market does really take off then tobacco probably won’t take part in it – like we have seen recently. However, if we do witness another difficult turn then it will continue to be a good place to put your money."