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Vice Fund Hopes Cigarettes, Booze Pay Off

Mutuals: The portfolio's investments will focus on so-called sin stocks, such as Philip Morris and Anheuser-Busch.

September 03, 2002|KATHIE O'DONNELL | BLOOMBERG NEWS

DALLAS — Vanguard Group has a ship as its logo. T. Rowe Price Group Inc. uses a bighorn sheep.

To represent its new Vice Fund, Mutuals.com chose a cigarette, a martini, dice and a gun sight.

Vice Fund, which begins trading today, will be the first open-end mutual fund focused on "socially irresponsible" investments, buying shares of companies such as Philip Morris Cos., Anheuser-Busch Cos., Harrah's Entertainment Inc. and Lockheed Martin Corp., said co-manager Dan Ahrens.

So-called sin stocks perform well in good times and bad, said Ahrens, who will run the portfolio for Dallas-based Mutuals.com with Eric McDonald.

Still, the new portfolio also shows that, with more than 8,300 mutual funds competing for investor assets, some money management firms must turn to gimmicks to raise money, said Russel Kinnel, analyst at fund tracker Morningstar Inc. in Chicago. "When you're working at an obscure shop, running an obscure fund, you have an incentive to do this kind of thing because that kind of name gets more ink," he said.

Portfolios such as Vice Fund have a narrow focus, subjecting investors to bigger swings in price, some analysts say. When the fund's industries are in favor, it can put up big returns because of its concentration in those stocks; that and the catchy name help lure investors' cash, Kinnel said. The flip side is such funds can incur bigger-than-average losses too.

Ahrens, 36, said Vice Fund will prove critics wrong. A subscription phase for the fund, during which investors could buy shares for $10 each, began Aug. 15 and ended Friday. Ahrens said he didn't yet know how much money the fund raised in all.

Mutuals.com, founded in 1994, has about $240 million in assets under management. Four no-load mutual funds that invest in other funds--so-called funds of funds--account for just under $100 million of that. Managers of Vice Fund will pick their own stocks, Ahrens said. He said his firm's experience in sifting through funds to select offerings for its funds of funds will help.

Ahrens is also vice president of distribution at Mutuals.com. He started his financial services career in 1988, working in the insurance industry before joining the firm in 1999. McDonald, president of Mutuals.com, worked as a stockbroker for two firms in Dallas before joining Mutuals.com in 1997.

Kinnel said he knew of only one other fund that focused on sin stocks, a closed-end fund called Morgan FunShares Inc. (ticker symbol: MFUN).

Unlike open-end funds, whose shares are always redeemable at net asset value, closed-end funds issue a specific number of shares that trade on exchanges, similar to regular stocks. Shares of Morgan FunShares, founded in 1994, recently traded at a 21% discount to net asset value. They closed at $5.40 on Nasdaq on Friday; the price is down 25% this year.

Morgan FunShares invests in companies whose products and services tend to be habitual, said Robert Pincus, president of the fund. Besides liquor, tobacco and gambling stocks, the fund also invests in shares of chewing gum maker Wm. Wrigley Jr. Co. and Coca-Cola Co.

"These consumer companies have held up probably better than the broad market," Pincus said.

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