- The Washington Times - Tuesday, October 29, 2002

Markets rise and markets fall, but one thing never seems to change: Drinkers drink, smokers smoke and gamblers gamble.
The Vice Fund, a new mutual fund, aims to capitalize on this by investing heavily in "sin" stocks from four industries: alcohol, tobacco, gambling and defense.
The fund, believed to be the first of its kind, bills itself as "socially irresponsible." Its managers say it will appeal to investors not because it is politically incorrect but because investors can easily understand the target industries.
"A few years ago, everyone was buying Enron stock. Do you think those people really understood the business Enron was in?" said Dan S. Ahrens, the Vice Fund's portfolio co-manager.
Among the fund's largest stock holdings are tobacco giant Philip Morris; Anheuser-Busch, the nation's largest beer maker; and Harrah's Entertainment, the world's largest gaming company.
The fund also owns shares of defense contractors such as Northrop Grumman. "Defense isn't necessarily a vice, but some people think weapons are," Mr. Ahrens said. The fund has not invested in firearms companies, although he has not ruled it out.
More than 26 percent of the fund's money is invested in defense. It may invest even more in the booming industry, especially if the United States goes to war with Iraq, Mr. Ahrens said.
Mutuals.com, a Texas research-and-investment outfit with $240 million in assets under management, sells and manages the Vice Fund. The company, founded in 1994, sells the fund through traditional brokerages as well as directly online at www.vicefund.com.
Mr. Ahrens, a former life-insurance company executive, manages the fund with Eric P. McDonald, a former stockbroker.
The fund went on sale Sept. 3. Performance data will not be available until after its first quarter, but according to the fund's prospectus, three of the fund's four target industries have outperformed the Standard & Poor's 500 index in the past five years.
Gambling and casino stocks performed best, gaining 116.35 percent over the five years, compared with an 11.83 percent gain for the S&P; 500, the prospectus said. Alcohol stocks gained 62.57 percent during the same period, while defense stocks gained 24.57 percent.
Only tobacco stocks have underperformed the S&P; 500 in the last five years, gaining just 7.82 percent. Tobacco companies have come under attack in recent years from the federal and state governments and class-action lawyers.
The Vice Fund is "consistent with the libertarian approach" many investors bring to Wall Street, says Josh Newberger, a business ethics professor at the University of Maryland, College Park.
"It fulfills a niche for a lot of people who don't necessarily make the connection that investing in a tobacco company helps promote smoking," Mr. Newberger said.
The introduction of the Vice Fund flies in the face of so-called socially responsible and morally responsible investing, a movement that gathered steam in the 1990s.
For example, the Ave Maria Catholic Values Fund avoids investing in companies like AOL Time Warner Inc., owner of the HBO cable network, which it says carries risque programming such as "The Sopranos" and "Sex and the City."
Instead, the fund invests in companies like discount-retail chain Ross Stores and H&R; Block, the nation's largest tax preparer. It also owns stock in two companies that are in the Vice Fund portfolio: defense contractors General Dynamics and Northrop Grumman.
"We screen things first from a financial basis. Once we find financially sound companies, we examine their record on the issues that are important to Catholics," said Robert C. Schwartz, research analyst for Schwartz Investment Trust, which manages the Ave Maria Catholic Values Fund.
Conservative activist Phyllis S. Schlafly and Cardinal Adam Maida, archbishop of Detroit, sit on a panel that advises the trust on its selections.
The fund went on sale in May 2001. In the six months that ended June 30, it was up 4.2 percent, while the S&P; 500 was down 13.2 percent. More than 600 shareholders have invested $60 million in the fund.
The Domini Social Equity Fund, introduced in 1991, is the oldest of the socially responsible funds. The fund's managers study a company's environmental and labor records before investing in it. They also avoid companies that produce alcohol, tobacco and firearms and companies that own or operate nuclear power plants.
The Domini fund's biggest holdings include Microsoft, Johnson & Johnson and American Internal Group, one of the world's largest insurance firms.
In the past 10 years, the fund has produced average annual returns of 8.51 percent, slightly below the 8.99 percent average annual return for the S&P; 500 during the same period.

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