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Harry Koza

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The wages of sin

Harry Koza


TORONTO (GlobeinvestorGOLD) - Back in 1999, I read an article on Bloomberg about mutual funds with religious values. The story covered funds like the Timothy Plan, the Noah Fund, the Catholic Values Investment Trust and the Shepherd Values Family of Funds, which invested according to a rather Biblical investment philosophy, shunning companies involved with abortion or pornography, or that extend benefits to the partners of gay employees. There are other funds that cater to Lutherans, Mennonites (MMA Praxis Mutual Funds - no investing in U.S. Treasuries, because of the Mennonite opposition to military service), or that invest according to Islamic precepts, avoiding bonds and interest-charging financial companies.

Timothy Plan funds would not invest in stocks like Columbia/HCA Healthcare, the U.S.'s biggest hospital operator, because some of its hospitals perform abortions. It also eschewed investing in Disney stock, because back in 1995, Disney's Miramax Films unit released a film called Priest, featuring a gay priest and another priest who sleeps with his housekeeper. Even worse for the Timothy managers, Disney extends health benefits to the partners of its gay and lesbian employees.

The thing is, though, that the returns on most of these funds, at least back then, sucked. They consistently underperformed the major stock indices. People often talk about the fundamentals of investment, but some of these funds have apparently gotten caught up in the fundamentalism of investment.

That gave me an idea, and I wrote this modest proposal, which I dug out of my extensive archives, and am shamelessly inserting into this column:

Dear Investor:

I am inviting you to be a founding investor in the Lucifer Group of Mutual Funds. The Lucifer Funds will invest only in SIN! Not for us those namby-pamby, tree-hugging, politically-correct ethical investments. And as for investing according to religious precepts? Not unless they are the religious precepts of Alastair Crowley. No dear friend, the Lucifer Funds will invest in gambling, alcohol, tobacco and weapons stocks. We will have core holdings in Beate Uhse, the German sex shop chain, and the Mustang Ranch (a publicly traded Nevada brothel). Forget Amazon, Google and E-Bay: our e-commerce stocks will be internet porn purveyours. Sony or Fox? Neither, we'll take those blasphemers at Lion's Gate and Miramax.

Nike makes shoes in the Third World using poorly-paid child labour? Not a problem. Coal and nuclear utilities? Send 'em in. Companies involved in bribing foreign government officials? As long as they win the deal. Companies that provide benefits to same-sex spouses? Hell, (no pun intended), we'll invest in companies run by gays, transsexuals, transvestites, whatever - as long as they make money. Toxic waste producers, land-mine manufacturers, hand-gun makers, private prison operators, we like them all. We pledge to only invest in cosmetic and pharmaceutical companies that test their products on animals, especially if they use cute animals, like puppies and bunny rabbits.

As the fund grows (and believe me, it'll grow like cancer!), we'll begin to offer more specialized funds, like the Leather Fetish Growth Fund, and the Colombian Agricultural Commodities Managed Futures Fund. Our foreign equity fund will invest only in companies domiciled in corrupt and despotic regimes.

And just think of the possibilities in Venture Capital. The opportunities in hemp farming alone are, like, far out, man, not to mention hydroponics, and we're not talking tomatoes here, if you get my drift.

Remember that David Bowie music royalty securitization a few years back? Think Ozzy, Black Sabbath, Judas Priest, Megadeath (though you'd think by now someone would have developed the technology to play records backwards so you can finally hear all those Satanic messages).

Part of our investment strategy will be to invest 1% of all monthly inflows in lottery tickets. We'll cultivate affinity relationships with the NRA, advertise in Soldier of Fortune and Hustler, pay dividends in cigarettes and booze, and hold our annual meetings in Vegas (where else?). The possibilities are legion!

I'm sure you will agree that this opportunity is worthy of further discussion. Let's get together over a couple of cocktails at the crossroads at midnight and talk about it further. Remember: Vice is Nice (we'll put that on the letterhead), and Sin is In!

Yours truly,

Harry Mephistopheles.

PS - is having to sign a contract in blood a problem for you?

I was, of course, being facetious when I wrote that, but it wasn't long before life imitated art, and real funds were launched based on exactly the guidelines that I had satirically suggested.

On August 30, 2002, Mutuals Advisors Inc. launched "The Vice Fund". It is still in business, and its returns are, dare I say it, smokin'.

As of Sept 30, 2005, the Vice Fund had returned 4.87 per cent year-to-date; 21.91 per cent over 1-year; 20.08 per cent over three years (average annual return); and since its inception, an average annual return of 17.55 per cent. Not too shabby. Its portfolio consisted of 25.21 per cent gaming stocks, 23.53 per cent defence stocks, 21.90 per cent alcohol stocks, 15.88 per cent tobacco stocks, and 13.48 per cent "other."

The "other" category includes such stocks as Playboy Enterprises, Harley Davidson, Rick's Cabaret International Inc (operator of a chain of strip clubs), and Guitar Center Inc (the biggest U.S. retailer of electric guitars, amps and other equipment for playing the devil's music).

They own 14 casino and lottery stocks, eight booze companies, one aerospace and defence company, and seven tobacco companies.

The Vice Fund trades under the symbol VICEX, and as of Oct. 28 had a net asset value of $15.70 (U.S.) a share. Its 52-week high is $16.92, its 52-week low $13.79. It has a MER of 1.75 per cent. Minimum initial investment is $2,500. The fund has been hammered pretty hard since mid-September, according to Bloomberg, and it is now down 6.55 per cent over the last three months, and only up 0.55 per cent year-to-date. Gee, looks like October was a bad month for sin stocks, too.

You can reach the company at 1-866-264-8783, or check them out on their website.

I remember reading about this fund when it was launched, and was amazed that someone had actually done it. But, I guess, because I'd been making fun of the concept, I didn't take it as seriously as I might have otherwise. Now that I've looked it up again, I may have to take a more serious look at it. Having been beaten up pretty good in October (along with most everything else), it may be getting close to a good entry point. It also gives some US market exposure, though I'm a touch leery of that because of the currency risk. If you think vice is nice, or if you are an investor of the Lou Reed school of thought (hey, babe, take a walk on the wild side), the Vice Fund may be for you.

Harry Koza is Senior Analyst in Canadian markets for Thomson Financial/IFR. At various times in his career, Mr. Koza has been a prospector, metallurgist, project manager, engineer, as well as an institutional bond salesman for 15 years. His current area of expertise is in high-yield distressed securities and corporate bonds in general.

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