Does the devil pick the best stocks? How sin can pay

Holding on to principled investments may come at a (small) price, according to a new study of the long-term performance of "sin" stocks like tobacco and alcohol companies.

Since 1900, the best-performing industries have been tobacco in the U.S. and alcohol in the U.K., according to a new study by Elroy Dimson, Paul Marsh, and Mike Staunton, emeritus professors of finance at the London Business School, for Credit Suisse.

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Of course, past performance doesn't equal future performance. "We are not saying to investors: go out and fill your wheelbarrows with tobacco and alcohol," Marsh told CNBC.If your pangs of conscience prove too much to take, one thing to consider is that investors who exit "sin" stocks like tobacco, alcohol or gambling may partly have been responsible for the industries' overperformance.

"By selling off at a reduced price, you make the stock more attractive to people who have fewer scruples," Marsh said.

Ethical investment has grown in recent years, as more investors have expressed concern about the source of income in their portfolios. Funds representing around half the assets of institutional investors around the world have signed up to the UN-supported Principles for Responsible Investment.

The study found that the impact of modest reductions in "sin" stocks to a portfolio was "generally small". There are also a growing number of stocks classed as sinful, with coal companies recently being relegated, and some investors putting oil and gas companies in the same category. There was even a debate at Norway's $870 billion sovereign oil fund recently over whether it could continue to invest in oil.

There are also warnings for investors who pile into new initial public offerings of new industries. You get better long-term returns from companies which have been around more than 2 decades than less than 3 years, the authors pointed out.

"Investors have always enthusiastically embraced new technology – sometimes too enthusiastically," Marsh warned.

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