Most investors understand that the companies they put their money in may have business plans and market objectives they may not totally agree with, or sell products they don’t use or approve of.
Still, they are generally willing to overlook this if the company is profitable and produces a good return. Mutual funds have specific investment objectives and limitations as well; in the past we have written about funds that include environmental, religious, or moral constraints in what they buy. So, what should you pursue for investment survival — vice or virtue? Here are two funds; both are highly rated, but with very different objectives.
Parnassus Equity Income Fund (PRBLX), headquartered in San Francisco, manages over $4.4 billion in assets, and is one of the oldest and largest socially responsible funds. Parnassus Equity Income screens out companies that sell alcohol, tobacco, and weaponry, which eliminates all but around 200 of the S&P 500 companies. The fund managers then apply a value-oriented approach and invest in companies of all sizes, relying on both fundamental analysis and top-down research. As of March 2012, the fund’s top five holdings were Procter & Gamble (PG), Waste Management (WMT), Gilead Sciences (GILD ), Teleflex (TFX), and Google (GOOG).
The universe of funds investing in, well, our darker side is pretty limited. The Vice Investor Fund, (VICEX) part of the USA Mutual funds with assets of $92.3 million, has been working since 2002 to put investors’ money to work exclusively in the areas of defense, gambling, tobacco, and alcohol. Part of their investment rationale is that these global sectors show “steady demand regardless of economic conditions, potentially high profit margins, and natural barriers to new competition.” Their top five holdings are Lorillard (LO), Philip Morris International (PM) Wynn Resorts (WYNN), Altria Group (MO), and Las Vegas Sands Corp (LVS).
So will you do better being bad, or will being good be good for your portfolio? While simple fund performance comparisons of this type have many variables and hardly constitute a scientific evaluation, the chart below shows some total return numbers.
If you had invested $10,000 in the Parnassus fund at the beginning of 2006, it would have grown to $15,689 by the end of first quarter 2012, while $10,000 invested in the Vice Fund during the same time period would have grown to $14,111, using simple compounding calculation of annual returns.
So be good.
Steven Weber is the senior investment advisor for The Bedminster Group, providing investment, estate, financial planning and brokerage services. The information contained herein was obtained from sources considered reliable. Their accuracy cannot be guaranteed. The opinions expressed are solely those of the authors and do not necessarily reflect those from any other source. The discussion of securities in this article should not be construed as a recommendation or solicitation to purchase.