When Americans are worried, they reach for guns, tobacco, slot machines and booze — and that's one reason USA Mutuals Vice fund (VICEX) has done so well this year.
Unlike funds that seek to make the world safer and healthier,
USA Mutuals Vice fund aims to profit from our bad habits. The fund invests at least 80% of its assets in “vice industries,” which, according to the fund, includes the alcoholic beverages, tobacco, gaming and defense/aerospace industries.
So far this year, the fund has gained 10.41%, versus 6.19% for the Standard and Poor's 500 stock index. It has beaten the S&P 500 in three of the last four presidential election cycles, with the sole exception being 2008.
It is a fund that probably never going to be part of your
church pension fund. Its top holding is Smith & Wesson (SWHC), up 26.71% this year on soaring gun sales. Reynolds American (RAI), the tobacco company, is its second-largest holding. It's up 22.08%. MGM Resorts (MGM), up 19.63% this year, rounds out the fund's top three holdings.
Gun owners would probably bristle at the notion of gun sales as a vice, which illustrates some of the difficulty of running a socially conscious (or, in this case, politically incorrect) mutual fund. And members of the military would probably take issue with the aerospace/defense industry being lumped in with so-called sin industries.
Nevertheless, the U.S. spends 16% of its budget, or $602 billion, on defense every year. (This doesn't include the $145 billion or so spent on veterans). Defense is a very lucrative business. So far this year,
iShares U.S. Aerospace & Defense ETF (ITA) has gained 10.98%, while
SPDR Aerospace & Defense (XAR) is up 10.86%.
Somewhat fortuitously — for fund investors, anyway — the Vice fund's first full year of operations was 2003, which coincided with the start of the Iraq war. The fund gained 34.33% that year, versus 28.68% for the S&P 500.
Food and beverage has been the laggard in the vice arena. PowerShares Dynamic Food & Beverage, a useful proxy for the sector, has gained just 2.38% this year. In the Vice portfolio, Constellation Brands (STZ), maker of Mexican beer, is up 17.55%, and Molson Coors Brewing (TAP), has risen 13.1%.
Since its inception in August 2002, the Vice fund has beaten the S&P 500 by 0.68 percentage points, but it hasn't been a straight upward climb. It lagged the S&P in 2014, and got clobbered in 2008, falling 41.57% versus 37% for the large-cap index.