Being the manager of a fund that invests in gambling, alcohol and other ‘vice stocks’ doesn’t require extensive first-hand experience of the merchandise, says Charles Norton, manager of the Dallas-based Vice Fund in Barron’s.
“I don’t drink regularly, I don’t smoke, I rarely gamble, and I haven’t shot anyone ever,” says the 32-year-old manager of the $52m fund. Still, he’s helped the four-year-old fund along to some impressive returns since taking over the reins a year ago. It’s returned 10% against 4.2% for the S&P 500 so far this year, leaving its socially responsible competitors kicking up dust.
But as he tells Market Watch, investing in the tobacco, alcohol, gaming and defence sectors isn’t just a marketing gimmick. These sectors do very well compared to others, especially in recessions. “People drink, smoke, and gamble, and countries wage war regardless of what’s happening in the economy,” he says.
So far, the strategy has paid off. Gambling and casino stocks are up 21.5% this year alone and an average of 27.1% a year in the last three years, while tobacco has risen 28.8% this year and 35.5% a year over three years, according to Morningstar.com, which gives the fund a five-star rating.
And while 58.7% of the fund’s stocks are large caps, Lipper analyst Jeff Tjornehoj tells The New York Times that it deserves credit for not focusing “entirely on household names”. Smaller stocks include the Polish drinks distributor Central European Distribution, internet gambling software group CryptoLogic, and Viisage Technology, a provider of facial recognition security technology.
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