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When Vices are Rewarding

Ethical funds believe that your moral values should reflect in your investing. The Vice Fund on the other hand believes that you should benefit from your vices too. Alcohol, cigarettes, arms and ammunition are the investment themes here.

Investing is done to make money, but ethical funds—a class of funds, which exist in the US—believe that you can invest, while making a difference. Ethical funds invest on the concept called 'socially responsible investing'. As per this concept, money is put into companies that support a social cause, are fair to their employees and respect the environment. Investing in such companies implies investment in a better tomorrow for the whole society. Hence, ethical investing stands for corporate social responsibility. These funds also look at what is correct from a moral or even health viewpoint. Thus companies manufacturing alcohol, cigarettes, arms and ammunition are out of their investment universe.

Given such an investment objective the question that needs to be asked is: how are these companies selected? Ethical investing does not mean sacrificing the objective of maximising profits. In fact, the companies are well-researched without compromising on social and environmental standards.

On the other hand, the US-based 'Vice Fund' follows just the opposite strategy—investing in 'sin' stocks. The fund—probably the first of its kind invests in 'socially irresponsible' style. It invests in four industries—alcohol, aerospace and defense, tobacco and gambling. It believes that such industries are nearly recession-proof and have potential for significant capital appreciation in good and bad phases of the market.

The fund's top 10 holdings in March 2003 included companies such as tobacco giant Philip Morris; the largest beer maker, Anheuser-Busch; the world's largest gaming company, Harrah's Entertainment; British American Tobacco and MGM Mirage.

Vice Fund is managed by Mutuals.com—a Texas- based research and investment company. The fund believes that it will attract investors not so much because it is socially incorrect but because investors can easily understand the target industries.

Ethical investing does have a track-record of success—in the 80s, a number of US funds refused to invest in companies whose South African operations lent political support to the racist regime that country then had. This did force many US companies to change the behaviour of their subsidiaries.