The Fund Route to Sin Stocks
If you don't want to muck around in sin stocks, hire a mutual fund manager to do the dirty work for you.
Only one fund specializes in the entire range of sin stocks. Vice fund, run by Charles Norton since September 2005, invests in alcohol, gaming, tobacco and defense. We hardly consider military-related companies to be sinful, but Norton includes them because they tend to run counter to general economic trends and because most socially screened funds -- polar opposites of his fund -- shun them. Top holdings include Altria, Diageo and British American Tobacco. Vice gained 21% in 2007 to December 10, compared with the S&P 500's 8% return. The $177-million fund (symbol VICEX) doesn't levy sales fees, but it charges a hefty annual fee of 1.75%.
Dan Ahrens, former manager of Vice fund, now runs the tiny (assets of $3 million) Ladenburg Thalmann Gaming and Casino fund. The fund holds just 35 stocks, including Penn National Gaming, Las Vegas Sands and MGM Mirage. Since its March 2006 debut, performance has been as erratic as a floating craps game. In 2007 to December 10, the fund (GACFX) gained 3%. Annual fees are 1.70%.
So-called leisure funds and other specialized funds may also hold healthy doses of sin stocks. Geoff Kuli, manager of Fidelity Select Leisure since October 2006, hunts for reasonably priced, growing companies in the media, entertainment, cable, food and beverage industries. At last report, the fund (FDLSX) had about 15% of its $263 million of assets in gaming stocks. Select Leisure gained 9% in 2007 to December 10. About one-fourth of Rydex Leisure's $9 million in assets are in casino stocks. The fund (RYLIX) uses a formula to buy equal portions of stocks in the leisure sector. Over the past five years, it returned 14% annualized, beating the S&P 500 by an average of one percentage point per year.
Fidelity Select Consumer Staples recently kept 20% of its portfolio in alcohol and tobacco stocks. The fund (FDFAX), managed by Robert Lee since June 2004, has a three-year annualized return of 18%, which beat the S&P 500 by an average of seven percentage points per year.