On the Money - The virtues of Vice, a socially irresponsible fund for investors

By Michael Coote

Friday 23rd August 2002

It had to happen. Recently in an NBR column in which I covered the UNEP Socially Responsible Investment conference, I speculated that there could be merit in offering a socially irresponsible fund.

Lo and behold, one has just been launched in the US.

Called the Vice Fund, the mutual fund specialises in the "nearly recession-proof" and "politically incorrect" industries of alcohol, tobacco, gambling, and aerospace & defence. Its Dionysian rallying cry is, "When it's good, it is very, very good ... and when it's bad, it's better."

The fund takes its inspiration from no less a respected investment luminary than Abraham Lincoln, who is quoted as saying, "It has been my experience that folks who have no vices have very few virtues."

Apparently President Lincoln thought better of Southern secessionist slave owners than might have been supposed by the advent of the American Civil War.

The Confederates were certainly big on smokin', drinkin', gamblin, 'n' fightin', if Gone with the Wind is anything to judge by.

Launched this month by advisers Mutuals.com, Inc, perhaps it should not surprise us that the fund has emerged from larger-than-life Dallas, Texas. J R Ewing would have approved and no doubt wished he had thought of it first.

It can be edifying to grade oneself on a scale of one to four about the fund's chosen vices, including killing. I quickly surmised that I scored a two. If a seven deadly sins fund came out, I should have to think a bit harder, allowing for contemporary considerations of moral relativism.

Returns received from the Vice Fund could help offset any taxes paid on indulging in its underlying product range.

Given that Iraq is allegedly about to be destroyed to save it from Saddam Hussein, and the aerospace and defence industries are cranking up production of the hardware required to do it, perhaps now is the time to buy.

There's money in muck, according to Vice Fund's promoters. By their estimates, if an investor had split funds 25% each across the four selected industrial categories into listings of $US50 million-plus market capitalisation and on a capitalisation-weighted basis over the five years from June 30, 1997, to June 30, 2002, then cumulative returns would have been 53% against 12%.

"While actual investment performance of the Vice Fund will differ, we believe these sectors, regardless of bull or bear markets, will continue to experience significant capital appreciation," Mutuals.com, Inc avers.

Comment made by the promoting advisers on the various selected industries is intriguing.

For alcohol, it is stated that the first US president, George Washington, enjoyed "the juice of the malt all the days of his life," presumably a patriotic endorsement.

Oddly enough, there is no reference to the ubiquitous Al Capone, cigar smoker, gambling racketeer, and flagbearer for the demon drink, who incidentally had connections also with the defence industry through bulk purchase of machine guns for the St Valentine's Day massacre.

Possibly some potential investors might squirm at the thought of consumers imbibing viciously.

Mutuals.com, Inc reassuringly claims that it believes in responsible drinking and praises Anheuser-Busch and its distributors for spending $375 million promoting alcohol awareness programmes since 1982.

Curiously, for tobacco there is no boost given for responsible smoking. Nor do we find any tout for responsible use of aerospace and defence products.

Perhaps the Geneva Convention is taken as read. However, for gambling, the advisers thriftily tip that it is better to own casinos than to play in them.

Aerospace and defence is where it gets truly surreal: "Osama bin Laden. That should be enough of a reason for defence stocks. So called "socially responsible investors" would claim that you shouldn't own stocks that have anything to do with defence or weapons.

"That means that all of the aerospace and defence industries are to be avoided. Maybe in a perfect world these industries wouldn't need to exist, but until that perfect world does exist, we want to own these stocks."

Indeed, to profit from the extermination of all those who stand in the way of that perfect world. Seen in that light, there is a positive moral duty to be a weapons investor, which makes it odd to see it ranks as a vice.

Even the Old Testament urges us to buy bombs, we learn: "If you believe the Bible, it all started with Cain and Abel. We think this industry will be a good place to invest for a very long time."

Mutuals.com, Inc does not appear to picking Armageddon any time soon, which should bring comfort to those who want the world to burn slowly in the meantime and not in their own back yards.

We are warned by the advisers that peddling booze and fags can get companies sued. Apparently it is not always a matter of laughing along with Vice all the way to the bank.

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