The Wages of Sin

For investors looking for mutual fund investments that reflect their social values there are hundreds of socially responsible investment (SRI) choices available, not to mention dozens of faith-based funds that take the tenets of a particular faith, be it Roman Catholic, Lutheran, Mennonite, Islam or any of a number of other denominations into consideration when applying screens. But for those interested in the opposite of virtue, there’s only one choice–The Vice Fund. The fund’s original manager, Dan Ahrens, succinctly summed up its concentration on alcohol, tobacco, gaming, and defense companies in the title of his 2004 book, Investing in Vice, the Recession-Proof Portfolio of Booze, Bets, Bombs and Butts (St. Martin’s Press).

Although the name is certainly provocative, according to Charles Norton, who has managed the five-year-old fund since September 2005, it’s really a fund that “was established to focus on four sectors that were identified to have the potential for long-term gains in a variety of different market and economic conditions.”

Acknowledging that the fund’s name generates a lot of buzz, Norton stresses, “this is a real strategy. Despite the fact that the name might imply such, we’re not making any sort of moral judgment on these sectors. We’re completely indifferent when it comes to that. We just look at it through the eyes of the investor and we see a lot of investment merit in these four sectors.”

There’s an unvarying demand for the goods and services of these four industries. They’re global in nature with most of the growth coming from outside the U.S. There are high barriers to the entry of new players in any of these sectors. All are important to national and local governments either as an important source of tax revenue, or in the case of defense, as a supplier of vital materials, giving government a vested interest in seeing that these businesses remain viable. Alcohol and tobacco have very low production costs and all four industries are very profitable.