Vice funds: These are funds that invest in Alcohol, Tobacco, Arms/Military supplies, and Gambling. Basically they go for everything that isn’t green, socially responsible, or beneficial to mankind, and much to my personal chagrin it seems to work. (the first one I looked at has done over 21% on average for the last five years)
In an environment where stocks and property are going haywire the stocks in these markets seem to be performing quite strong. Reutersrecently did an article about art and wine, and how the recent world market events have left them relatively untouched (in the sense of a negative impact), infact wine funds are one of the things that are experiencing a growth phase during all of this. Maybe its true, when there are hard times we all turn to drink. Certainly the shareprice in Diageo made gains in the last month (although it did fall 1.3% this week).
During the great depression people still found the money to drink (to what I recall the popular whiskey back then was a brand called ‘four roses’), I’m not implying we are going to be going into anything like a great depression but mankind doesn’t change that much, alcohol is still going to be a firm buy for the coming future. Another thing is that the things we make liquor out of are the same things that bio-fuel is made out of and bio-fuels are all the rage, the corn used to make Jack Daniels is now more likely to end up in the fuel tank of an over-sized HummVee.
We can’t say the same for grapes but wines funds seem to be ‘ageing like a fine wine’ themselves. In 2007 the FTSE rose by 4% but in the Liv-Exthe main index ended the year up 40%, that means it outperformed the main market times ten! This means that wine must not be correlated to what happens in other markets, and clearly it is not even a distant 5th cousin to the sub-prime loan. For an investor wine is becoming its own asset class, the increased consumption in Ireland and the UK mean that our markets are certainly adopting them to a greater degree, the greater distribution worldwide also has a big impact. In South America they are getting better quality local wines for the right price than they could ever hope to afford from France, Italy, or indeed any of the more traditional established wine making nations. Last but not by any means least is the market uptake of wine in places like China and Russia where their middle class are developing their palates quite fast.
Tobacco is another core product in any well balance vice fund, in this example we are talking ‘well balanced’ in the ‘Robert De Niro in the film Raging Bull’ sense of the word. If alcohol is doing well and I am to believe any of my smoking friends who say they can’t drink without a smoke then one hand holds the other. The reality though is that tobacco companies are doing their utmost to penetrate new markets- typically emerging economies, so that they too can share in raising lung cancer and premature death rates that the first world has so long enjoyed thanks to Tobacco. Perhaps I’m not being totally biased, but my personal opinions don’t drive markets so the odd sly punch at big tobacco will inevitably be included. Tobacco stocks over the last 12 month period have been… well… smoking (pun intended), or minus the inferior witt they have been on fire.
Wall Street have an expression: ‘when the going gets tough, the tough get eating, smoking, and drinking’ which is perhaps why in every single one of the eleven market declines since world war two that tobacco, drinks, and household goods are always the things companies (and therefore stocks) that outperform. There are even places you can get advice on how to invest around these ideas
For a while I was convinced that big tobacco was dead, certainly after they were hit with a $280 billion dollar damages claim, but in America the greenback is king and big business won out, that $280 billion was eliminated by the Supreme Court, small solace to the millions of people who lost loved ones due to tobacco consumption. The USA has a lot to answer for in the way they wiped out the American Indians, it was nothing short of genocide, however, Sitting Bull and his kin are laughing in their graves at the amount of lives that their native tobacco has taken from the invaders. Indeed tobacco killed more than 100 million people in the 2oth century and pundits think that in the 21st it could kill 1 billion, even George Bush doesn’t have that much blood on his hands.
Firearms also seem to do worryingly well during recessions, maybe people just like to shoot things after they get drunk and smoke a lot. I saw a documentary recently that was saying small arms killed more people than all the other weapons combined, that includes nuclear bombs, regular bombs, etc. etc. the firearms market is kind of fragmented though, on one hand you have the likes of Heckler and Koch who make assault rifles for the military, and then -and in equal proportions- you have the illegal weapons market where AK-47 replicas are punched out by the hundred in factories and shipped off to fund guerrilla wars and insurgencies. When the CIA helped Osama in Afghanistan they did so via an arms dealer who bought the weapons with US money and then smuggled them around the world into Pakistan and eventually on to Afghanistan. So if you want to invest in guns, do it via brands like Ruger, Smith and Wesson, Heckler and Koch, Steyr, Glock, and Remington etc. Even better yet, don’t buy any firearms stocks and make the world a better place, that goes against this article but not against making the world a safer place.
Gambling is the final tier any self-loathing vice fund, you can do this via a fund or directly into the various casino/gaming companies, gambling’s biggest growth areas, much like many other companies growth are has been in the realm of online games, things are changing too, the most recent rising star in world champion poker is Annette Obrestad (now sponsored by betfair) a girl from Norway. Annette (who goes by the handle Annette_15) was 15 when she got started with a free €10 bet on a poker website, she turned that into over 2 million in the following four years, if that’s not enterprising I don’t know what is, people describe her as ‘the machine’ but in fact she is just a raw talent and earned every cent, she is also the youngest player to have ever won a world poker tournament . Poker is gaining popularity around the world, indeed the actress Jennifer Tilly has been a winner at a 600 player event in Las Vegas and is giving the game star attraction in the same way Omar Sharif did for bridge. And Cricket star Shane Warne gave up the game in order to join a poker team at 888.com.
There was a film called ‘Johnny Dangerously’ where the lead character Michael Keaton says ‘Crime doesn’t pay, except for sometimes!’. Vice on the other hand seems to pay out time and time again.