Vice Fund is naughty and nice for the wallet

November 30, 2003

THE socially responsible Domini Social Equity Fund, which is based in New York's SoHo and avoids tobacco, alcohol, weapon and gambling stocks, has delivered a total return of 14 percent the past 12 months.

The socially irresponsible Vice Fund, which is based in Dallas and partakes of the above-named categories like Dean Martin drank martinis, has produced a 29 percent return in 12 months and likes its prospects just fine.

The wages of sin are death, St. Paul told the Romans, but apparently one can do quite nicely meanwhile in one's individual retirement account.

The Vice Fund's ticker symbol is VICEX. Its logo is a pair of dice, a rifle scope, a smoking cigarette and a martini glass with an olive. Co-managers Dan Ahrens, 37, and Eric McDonald, 31, launched the no-load mutual fund a little more than a year ago and were amazed that nobody else, to their belief, had done it first.

"It's been written about before," says Ahrens. "It's been joked about before. But once we started doing our research we were shocked that there wasn't another fund out there already."

As a marketing scheme, the Vice Fund is genius - an investment strategy on a bumper sticker. Curmudgeons near and far will find that the bragging rights that come with a sin-stock portfolio are alone worth the price of ownership, regardless of how much money they make.

But its managers claim the Vice Fund is more than a novelty investment. Owing to certain characteristics of the species Homo sapiens, they say, the Vice Fund may be a better bet than, say, pork bellies or bandwidth stocks.

"No matter what the economy's doing, no matter what the stock market is doing, we believe people are going to continue to drink and smoke and gamble," Ahrens says. And make war, he might have added.

There is also the contrarian angle. If huge chunks of capital are blackballing profitable business lines for no other reason than their political incorrectness, then perhaps capital without such scruples can snap up pieces of those profits at a discount.

The Vice Fund's top holding is Altria Group. To prevent shareholders who never heard of Altria Group from worrying that virtue might have contaminated the portfolio, fund officials helpfully list its former name: Philip Morris.

Other major holdings are United Technologies, maker of smart-bomb software and jet engines, and Northrop Grumman, which sells spy satellites, aircraft carriers and radar systems.

The Vice Fund has invested another big chunk of its $7 million in assets into Budweiser, Michelob, King Cobra and other brands owned by Anheuser-Busch.

Altria and United have generated handsome returns for investors in iniquity. Anheuser and Northrop have been so-so. The fund's biggest winners recently, Ahrens says, have tended to be in the gambling trade.

"It's done well, but we think there's still a lot of upside potential there," he says. "Gaming simply is expanding state by state. As governors and state legislators have a need for revenue, gaming is a way to raise revenue."

Vice Fund's No. 2 holding is Multimedia Games, a big supplier for "the Native American gaming market." Multimedia has doubled since February, with much of the gain coming since September, when its new slot machine was approved as a "bingo" game that can be placed on reservations without states' approval. Few chatterers or scribblers have complained about the Vice Fund.

"We actually expected to get half-positive press and half-negative press and reaction," Ahrens says. "In reality it's been overwhelmingly positive."

He seems disappointed. But in fact the Vice Fund is not nearly as vicious as it could be. No porn. No heroin, cocaine or racketeering - all proven moneymakers.

And the fund's managers take pains to note the benevolent aspects of the companies in which they invest. Anheuser-Busch was one of the first recyclers, they note. Aerospace and defense firms employ millions of Americans, they add. Las Vegas is a "family destination."

Awww. What a bunch of softies. Vice Fund officials like to pretend they're doing well by doing bad. I think they're secretly trying to make the world a better place.

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