With increasing numbers of smokers turning to vaping in recent years, investment experts believe that the burgeoning e-cigarette industry is far from smoke and mirrors.

This month marks the ten-year anniversary of the smoking ban in the UK, an event which was widely expected to be a massive blow to Britain’s tobacco companies.

Indeed, with an increased focus on ethical investing and declining numbers of smokers, tobacco firms fell out of vogue for some time.

Although many international tobacco firms still focus on emerging economies, where the habit is less in decline, most are now beginning to throw some serious weight behind alternatives to traditional cigarettes.

This month marks the ten-year anniversary of the smoking ban in the UK, an event which was widely expected to be a massive blow to Britain’s tobacco companies.

It comes as little surprise that firms want exposure to the area: sales of vaping products are expected to exceed £2billion by 2020 after surging 50 per cent last year to reach £1billion.

The boss of Philip Morris International, the world’s largest international tobacco firm, even said last month he believes its heated tobacco products can make Britain completely smoke-free in the near future.

Aside from shifting their focus from a dying industry to a growing one, the newest generation of e-cigarettes use ‘heat not burn’ technology that means these smokeless products are not exposed to the high taxes slapped on traditional tobacco products.

As Steve Clayton, fund manager at Hargreaves Lansdown, puts it: ‘Persuading smokers to switch from cigarettes to these newer generation products could lead to large profits.’

The two biggest tobacco companies in the UK are British American Tobacco (BAT) and Imperial Brands, which are both listed on the FTSE 100.

Both businesses have outperformed the wider market since the smoking ban. However, it was not until the rise of e-cigarettes that their performance really began to pick up.

BAT owns popular vaping brands Vype, Chic Group and Ten Motives, and in 2015 increased spending on alternative tobacco products by a significant 25 per cent. Its products are currently in 12 markets, and it plans to double that this year with a goal of doubling them again in 2018.

Adrian Lowcock, investment director at Architas, sees BAT as a strong investment: ‘It is very efficient and has decades of experience marketing to customers alongside well established distribution networks.

Sales of vaping products are expected to exceed £2bn by 2020 after surging 50 per cent last year to reach £1bn

‘Add in the fact that it is highly cash generative, which means it has the cash and resources to invest in developing its own products or to buy out others.’

Imperial Brands, meanwhile, owns e-cigarette brand Blu, which is available in the USA, UK, Italy and France.

It claims Blu will eventually be able to provide customers with as good a smoke as their normal cigarette, or even better.

Charles Huggins, a fund manager at Hargreaves Lansdown, believes the firm’s experience means there is merit behind its ambitions. ‘Imperial has the technological know-how and patents to exploit this opportunity and Blu will be the brand they will focus on,’ he said.

Those who prefer to leave stock-picking to the experts will be happy to know that many professional fund managers are also keen tobacco investors, and they can also provide easy exposure to firms outside the UK.

Perhaps the best example is the UK’s most famous fund manager, Neil Woodford. According to Woodford Investment Management, over three years the top three stocks in his Equity Income fund have been BAT, Reynolds American and Imperial Brands.

The Fidelity Global Dividend fund, managed by Dan Roberts, invests in BAT, while the Newton Global Income fund, managed by Nick Clay, owns Reynolds and Philip Morris International.

And finally, those who are still averse to investing in tobacco – e-cigarette or not – may also want to consider a growing group of funds which prohibit investments in the sector on ethical grounds.

These include the AXA Framlington UK Select Opportunities, the Edentree Amity UK fund and the Standard Life Investments UK Ethical fund.