Profiting from booze, cigs and gambling

One fund looks for opportunities in 'sin' stocks, and is beating the market with a 4.5% return.

By Kim Peterson Aug 20, 2010 2:42PM
Man holding cigarette © Ben + Marcos Welsh/AGE FotostockInvesting in bad things is producing good returns.

Just look at the Vice Fund (VICEX), which goes out of its way to put money into habits your mother might frown on. The fund is up 4.5% this year and ranks in the top 3% of its peers, the Associated Press reports.

Vice invests almost equally in cigarettes, booze, gaming and casinos and defense contractors. Wait a minute. Defense? The idea is that defense profits off of the escalation of conflicts. Not exactly a vice, but we'll cut the fund some slack.

The trend helping Vice the most is the runup in cigarette stocks, which have boomed an average of 12% this year, the AP reports. The fund's three biggest holdings are Philip Morris International (PM), Lorillard (LO) and Altria Group (MO).

Defense contractors are up about 12% and alcoholic beverage stocks have seen a 6% rise.

Only gaming companies are bad luck for the Vice Fund. Casino stocks have crashed in the recession, pulled down by debt from building massive resorts.

The AP interviewed the fund's manager, Jeff Middleswart, about Vice and why it's doing well. He said that because some people don't want to own "sin" stocks, they're available at a discount.

"If you listed everything you look for in a stock - companies with growing cash flow, that pay dividends and buy back shares and have clean balance sheets - you'd find a huge list of sin stocks," he added.

Middleswart praised the dividend from Philip Morris, with a nearly 5% yield. He said he's also expecting a bigger dividend from Anheuser Busch InBev (BUD) -- perhaps as high as 5% or 6%.



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