DALLAS -- Investing heaven may be only a sin away.
The Dallas-based Vice Fund has left political correctness to others and sinfully gone where other mutual funds fear to tread. The Vice Fund, which celebrated its fourth anniversary on Aug. 30, invests in casino stocks and companies that make liquor, tobacco and bombs.
Given people's proclivities to drink, smoke, gamble and blow each other up no matter what the economic climate, it should come as no surprise that the Vice Fund has been a consistent top performer. It has beaten the Standard & Poor's 500 index in each of the past three years and is on track to do it again this year, with a 10 percent gallop so far in 2006, compared with a 5 percent gain for the S&P.
The Vice Fund holds Morningstar's highest five-star rating and over the past year ranks 22nd out of the 174 mutual funds that invest in mid-size growth and value stocks.
"We have a history of outperforming the market," said Charles L. Norton, co-portfolio manager of the Vice Fund and principal at GNI Capital. "You soon realize that there is true investment merit in these sectors."
Merit indeed. Cigarette maker Altria Group Inc., the fund's largest holding, is up almost 70 percent during the past 18 months. Another holding, London-based Diageo PLC, which makes and distributes wine and spirits - including Johnnie Walker Scotch and Smirnoff vodka - is up about 30 percent during this period. In the gaming sector, one of Norton's favorites is Las Vegas Sands Corp., which has gained about 40 percent.
He believes these defensive sectors should perform even better - relative to the overall market - in the coming months if the economy slows as most financial experts predict. That's because people will spend money to smoke, drink and probably even to gamble during a recession.
The defense sector is essentially tied to the U.S. military budget and moves independently of U.S. economic cycles. But given the current geopolitical turmoil in the Middle East, no one is projecting big budget cuts in defense.
"Based on historical precedent, right now is the most opportune time to be invested in this fund," Norton said. "The reason is we are at an inflection point in the economy. We are already seeing signs of softening in the economy."
Not everyone shares this much enthusiasm for the Vice Fund. Hugh Johnson, chairman of Johnson Illington Advisors in Albany, N.Y., said while it is true that the sin sectors have outperformed the broader market in recent years, there's no assurance that will continue.
