Actualis



March 2008
Print Send to a friend

The bad boys of investing

Most people have heard of ethical investing. But not many know that there is at least one fund out there doing exactly the opposite. A quick look at this concept.

There are a variety of so-called ethical investment funds on the market. These subscribe to a philosophy of responsible investing and focus on companies with exemplary social records in terms of the environment, human rights and other such fundamental values.

In response to this trend, some U.S. fund managers have set up a fund that systematically invests in companies with a level of social responsibility that many people would find wanting. It’s called… the Vice Fund.

Unscrupulous Managers

The well-named Vice Fund (not available in Canada) is certainly more a curiosity than a full-fledged investment vehicle. It invests in defense-sector corporations, casinos and slot machines, tobacco companies, breweries, distilleries and other alcohol producers.

Yes, these same investments are found in a wide range of other funds. But the Vice Fund would seem to be the only one to invest exclusively in these sectors. All the bad boys under one roof, so to speak.

Does vice pay?

It remains to be seen whether such audacity really pays. Since it was created in 2003, the Vice Fund has posted an average annual return of 22%. In 2007, which played havoc with the market as a whole, it raked in no less than 17%. If you had invested $10,000 in the Vice Fund in 2003 it would have grown to more than $25,000 today. If, on the other hand, you had invested the same money based on the S&P 500 index, you would have less than $20,000.

Is vice more profitable than virtue?

im
Vice Fund                Vice Fund
S&P 500 index                S&P 500 index
Large-cap funds class                Large-cap funds class

Actually, the Vice Fund is not the only one playing this card. The Free Enterprise Action Fund, for instance, clashes with responsible investment by forcing companies, by means of resolutions, to justify their use of shareholders’ money for ethical purposes (such as combating global warming). There is also a virtual fund created in 2002, Clark’s Unethical Fund. If this fund actually existed, it would have outperformed the S&P 500 by 143% over the past five years.

These numbers are obviously very misleading: we’re comparing targeted funds with a diversified index, and all concentrated funds tend to produce results that diverge from global indices – sometimes up, and sometimes down! In any case, those who champion responsible investing can take heart: almost all of the companies in the Vice Fund have been falling since the beginning of this year, and the fund has lost 5% of its value. In the end, bad boys get what they deserve.

At least, some of the time.



Print Send to a friend