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Targeting Vice For High Return

By Ari Levy
Bloomberg News
Sunday, March 6, 2005; Page F01

Dan Ahrens and investors in his Vice Fund, the top performer the past 12 months among growth-stock mutual funds with less than $500 million of assets, have been rewarded for pursuing a "socially irresponsible" strategy.

Ahrens targets shares of companies that run casinos, sell beer and cigarettes, and make weapons. His philosophy contrasts with the approach taken by so-called socially responsible funds, which shun the stocks.

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"No matter what the market is doing, people are going to continue to drink, continue to smoke and continue to gamble," Ahrens, 39, said in an interview from his Dallas office.

His fund rose 20 percent in the past 12 months, the biggest advance of 84 funds tracked by Bloomberg that have less than $500 million of assets and concentrate investments in companies that generate above-average earnings growth. The performance surpassed the Sierra Club Stock Fund, the leader in the socially responsible category, which gained 6.7 percent.

The Vice Fund's holdings include Harrah's Entertainment Inc., the No. 2 U.S. casino operator; Anheuser-Busch Cos., the world's largest brewer; and Altria Group Inc., parent of the maker of Marlboro cigarettes.

Ahrens's investment approach is risky because he has fewer investment options than most of his competitors, said Christopher J. Traulsen, an analyst at Morningstar Inc., the fund industry research firm in Chicago. "I'm not sure why you'd want to limit yourself to vice stocks," he said. "People need cigarettes and booze and gambling, but they also need health care. I would rather have a manager that would invest in them when it's opportune."

Ahrens started the Vice Fund in September 2002. According to the fund's prospectus, it usually devotes at least 80 percent of assets to companies that derive "a significant portion of their revenue from products often considered socially irresponsible."

The Vice Fund's investment philosophy contrasts with money managers such as Amy Domini, whose Boston-based firm has attracted about $2 billion by avoiding shares of companies involved in alcohol, tobacco, gambling and weapons. The Vice Fund, by contrast, has $29 million of assets.

The Domini Social Equity Fund, the biggest in its category, rose 3.9 percent in the past 12 months. "We start from polar opposite places," Domini said in an interview. Cigarette and alcohol makers earn money by "shoving costs from their balance sheet onto everyone else. We pay more in health care costs and hospital bills to subsidize tobacco companies," she said.

Ahrens disagrees with his detractors. Buyers of socially responsible funds often "have no idea what they're investing in," he said. The funds have different guidelines that are sometimes contradictory and "rather outrageous," Ahrens said.


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