I was listening to an NPR report today, where they were talking about attempst to “punish” firms that make socially undesireable products. take guns-many people believe that institutions like teahcer’s Pension funds and university endowment funds should divest of stocks like Ruger and Smith& Wesson (gun manufacturers). they noted the irony that gun maker stocks are up hugely. So I was thinking-are there any mutual funds that invest in firms that liberals are blacklisting? I like the idea, because I am at heart a contrarian. At any rate, what are good funds like this?
For one example, USA Mutuals Barrier Fund, which “will invest at least 80% of its net assets in equity securities of companies that derive a significant portion of their revenues from alcoholic beverages, tobacco, gaming and defense/aerospace.”
For more, Google “sin mutual funds.”
There’s a theory that, as “ethical investing” becomes more and more popular, stocks which tend to be viewed as unethical should be undervalued, and should therefore offer additional value, so an investor who is chasing the best return should favour these stocks.
And, as Dewey Finn says, there are mutual funds out there which seek to capitalise on this.
I don’t know if anyone has done any study comparing the performance of “sin mutual funds” with either ethical mutual funds or unfiltered mutual funds. It would be interesting to see the outcome.
I read one terrible study years ago that indicated the ethical mutual funds had better performance. Because ethical funds were new and had a limited history, the study looked at only a few years’ performance from the late 1990s to 2000. Ethical funds at the time excluded oil, defense contractors, gambling, guns, cars, airlines, miners, etc. As a result, they were greatly overweighted in what was left, including a lot of tech companies. During the time period of the study, tech companies did amazingly well. I expect that the next few years were disastrous to tech-heavy mutual funds like a lot of those ethical funds and people stopped talking about their performance. They probably look good again because they’ve avoided the routing of the oil industry in the recent past.
If you are looking to overweight the sin industries, you could consider industry sector funds. Some specialize in energy (largely oil), beverages, (largely alcohol, but some soft drinks), and others. If those aren’t focused enough on sin, you can always buy individual stocks.
I was debating whether or not to open a thread about this very subject: mutual funds which cater to one’s political, philosophical, and religeous alignment, enabling you to invest with your conscience.
For example, a Pacifist may not want his money going to a Smith and Wesson, a Vegan may not want her money going to Boar’s Head deli meats, and a Pro-Lifer may object to money going to Planned Parenthood.
In addition to the above answers, I just want to note that the purpose of divestiture movements is not to “punish” the offending companies. They are due to some faction of people who believe that the fund (usually a university endowment or pension fund) should not profit from industries that they consider immoral, or just don’t like.
There are so many mutual funds that I wouldn’t be surprised to find ones for every niche interest.
There are some data. No clear cut winner, but there never is.
One thing I found interesting is that according to someone I know who had money in these once, apparently a lot of the SRI funds got clobbered by the Enron collapse. The funds liked to have some energy stocks in their portfolio, and Enron was very attractive in the 90’s because it was doing really well and didn’t have any environmental baggage. Of course in retrospect, that was because to create environmental problems your company actually has to be doing something, and Enron’s actual real-world energy activities were tiny relative to the (supposed) size of the company.
Liberal, social-progressive thinking is contrarian, both in the world of finance and in this right-of-center country. Not sure what you’re getting at.