Vice Fund (VICEX) Performance Analysis: Does Being Naughty Pay Off?

Vice Fund (VICEX) is a mutual fund that invests in the tobacco, gambling, alcohol, and defense industries. It’s a very clever marketing idea to invest in these naughty stocks. When portfolio managers are generalists, limiting oneself to certain industries hampers returns. But returns are slightly better when fund managers are experts in those industries.

Insider Monkey, your source for insider trading data, obtained Vice Fund’s returns from Yahoo! Finance and applied Carhart’s four factor model to calculate its alpha. Vice Fund charges nearly 2% in management fees and has a 60% annual turnover. Our regression results for the past 5 years shows that the Vice Fund has a market beta of 0.92. The fund invests in mid size growth stocks on the average. Vice Fund’s alpha is -2.4 basis points per month, which is really zero.

We don’t think it’s a good idea to invest in the Vice Fund (VICEX) mainly because of its nearly 2% management fees. The fund’s strategy is pretty straight-forward and seems to generate a small alpha before expenses. It shouldn’t be difficult to monkey their holdings/strategy. Their turnover is pretty low. On the average they hold each stock more than 18 months and they may not even have stock picking ability. It’s possible that one might be able to generate better returns by passively investing in these industries. Lower costs and longer holding periods might deliver much better after-tax returns.

Vice Fund’s management charges a very high management fee and effectively captures all the alpha the strategy can generate.

In short, mutual fund investors end up making market returns without the tax benefits of passive investing. 

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