A Sinner's Portfolio
We've talked about
'green' investing before, which lets you invest in companies
deemed to be good for our planet and the people on it.
Not this time. Today, we take a walk on the wild side
with the evil twin of socially responsible investing, sin stocks.
Our focus: Funds that invest in stocks that give the moral majority
a swift kick in their assets.
Sin stocks typically share one theme in common: The
stocks they invest in are habit forming. That means tobacco, liquor
and gambling stocks. To find funds for our sin portfolio, we scanned
fund holdings looking for big gulps in companies like Anheuser Busch
(NYSE: BUD), Circus Circus
casinos (NYSE: CIR),
Seagram Co. (NYSE: VO),
Philip Morris (NYSE: MO)
and RJR Nabisco.
"Sin" stocks tend to hold up better in down markets
and may also rally with similar market-beating strength in good
times. One exception to the upside in a raging bull market: tobacco
companies, which have seen their profits go up in smoke. However,
in the turbulent days of the past few weeks, tobacco stocks have
screamed ahead of the pack. Reason: It's hard to quit the habits
that many people use to de-stress in times of real stress. Sin stocks
generally belong to that somewhat bogus class of investments called
"recession proof," since even in the worst of times, people don't
stop smoking and drinking -- and actually tend to increase consumption
sometimes. So, if you can ignore the issue of someone else's definition
of morality when it comes to your own investments, sinning can be
good for you. The trick is get into the habit, rather than kick
it -- and a few funds can help your portfolio get hooked on profits.
Our sinner's portfolio combines a core sin fund with
three more diversified habit-forming focused ones. We like dividing
assets equally into each fund (25 percent per fund). Together, they
create a portfolio that is close to a fully invested, diversified
ticket to the Sin World.
Woody Allen would call our first fund "polymorphously
perverse." We found that Morgan Fun Shares (MFUN),
a closed-end fund, is the closest thing to a pure sin fund that
we could find. Eighty-one-year-old manager Burt Morgan's habits
(he doesn't smoke or drink) are squeaky clean -- but his fund makes
the Dirty Dozen look like a chorus of choir boys. His holdings
have run the gamut from Seagram's (booze and beyond), Carter-Wallace
(maker of Trojans), Frederick's of Hollywood (perhaps the best annual
report in the biz), to gambling houses that will leave you with
less than you came in with. Just like this fund, which lost 3.6
percent in '99 and is down 7.4 percent so far this year. Of course,
it's selling at a 7.5 percent discount, so it's actually about flat
for the year against an S&P up a mere 2 percent (see my
March 20 column for an explanation of closed-end funds selling
at a discount). Moreover, in the past two weeks, the fund has fared
well relative to the nasty Nasdaq. Of course, we don't advocate
hitching your life savings to this one, volatile fund. Instead,
take a more sensible, diversified approach to your sinning.
Enter Invesco Strategic Leisure (FLISX),
which holds a small packet of tobacco stocks and a few brewmeisters
in its fold. Delivering the goods is something this fund's shareholders
have come to expect. This fund smoked the competition last year
(up 65.6%) but is down 5 percent or so this year. Manager Mark Greenberg,
who joined INVESCO in '96, lends domestic diversification to our
portfolio, focusing his fund in consumer-sensitive sectors including
entertainment, recreation, restaurants, retailers, toys, newspapers,
cable, broadcasting. The fund has a new-economy buzz that's habit
Fidelity Consumer Industries (FSCPX)
helps level the habit-forming landscape, including such companies
as Coca Cola (NYSE: KO),
Philip Morris, and Sara Lee (NYSE: SLE).
This fund also has a stellar annualized return record vs. the S&P
500, with a substantially lower level of risk. True, last year wasn't
a barnburner (the fund posted a 10.1 percent return). And yes, like
the other funds we've got here, it's down for the year -- but this
is the environment where sin stocks should light up. The key will
be to ensure that you're not left holding the butt end.
Finally, since it's as much fun to sin abroad as it
is at home, consider AIM Global Consumer Products & Services
(GPSAX) fund which seeks long-term capital growth by investing
in companies throughout the world that manufacture, market, retail
or distribute consumer products and services. It's a relatively
new fund -- with some fees that would be described as sinful by
pure no-load fund advocates -- but its broad reach into the world's
merry-making markets means that you can have a portfolio where the
sun never sets and the fun never stops.
So now you know, we're no angels. But at least we
admit that we like the sound of filthy lucre -- so long as it's
lining our pockets. The above portfolio will likely ensure that
you can have your smokes, single malts, and gambling urges fulfilled
in a way that would definitely get you kicked out of the confessional.
But in tough times, these funds might help you net against-the-grain
profits which, at the end of the day, will have you invited back
to the holier-than-thou set, if only because you'll be able to kick
in when the plate is passed.
-- Posted: April 10, 2000