Warning: top-performing funds are highly likely to contain tobacco

Axa will no longer invest in the tobacco industry: the French insurance giant will sell €184 million of shares and gradually reduce its €1.6 billion bond holdings in the sector. No surprise, given Axa’s role as a health insurer and the oft-repeated statistic that smoking kills six million people a year; indeed, you might think any health-related investor would have taken the decision years ago. Except that cigarette-makers have been stellar stock market performers since the beginning of the century: British American Tobacco’s shares have multiplied in value a dozen times while paying rich dividends, and Imperial Tobacco (now Imperial Brands) has been almost as good. MSCI’s global index of tobacco shares has outperformed equities generally three times over for the past decade.

And that creates a conundrum, especially for pension-fund managers. Tobacco is legal; smokers persist, of their own free will, despite health warnings. But to the extent that smoking has declined in the UK and other parts of the developed world, it is a factor in the rising longevity that challenges the pensions industry.