Vice Fund: What it Means, How it Works, Investing

What is Vice Fund?

The Vice Fund is a mutual fund that invests primarily in companies generating significant revenue from "vice industries," including alcoholic beverages, tobacco, gaming, and defense sectors. These industries, often considered morally questionable, exhibit resilient demand and high barriers to entry, making the fund a unique option for investors seeking exposure to sin stocks.

This fund seeks long-term capital growth by focusing on equity securities with stable cash flows, including global companies within these sectors. Its approach contrasts traditional socially responsible funds by targeting sectors often excluded elsewhere.

Key Characteristics

The Vice Fund's core features highlight targeted sector exposure and global diversification:

• Sector Focus: Invests at least 80% of assets in vice industries such as alcohol, tobacco, gaming, and defense, with no more than 80% in any single one.
• Global Reach: Allocates at least 40% of its portfolio to non-U.S. companies across multiple countries, including exposure similar to the EAFE Index.
• Dividend Emphasis: Targets firms with positive cash flow and dividend payments, aligning with strategies like best dividend stocks.
• Multiple Share Classes: Available in Investor Class, A shares, C shares, and Institutional classes, each with varying fee structures.
• Active Management: Fund managers select stocks based on strong fundamentals and barriers to entry, akin to factor investing principles.

How It Works

The Vice Fund constructs a portfolio by concentrating investments in companies tied to vice industries, balancing sector exposure to manage risk. It combines both domestic and international equities, aiming to outperform broad market indices by leveraging niche sector demand and resilient cash flows.

Managers utilize research to identify companies with strong financial health, including those with stable dividends and growth potential. The fund may engage in leverage and derivatives, which introduces additional tail risk, while currency and geopolitical factors impact its international holdings.

Examples and Use Cases

Investors seeking exposure to vice industries can find suitable companies within the Vice Fund's portfolio. Examples include:

• Alcoholic Beverages: Firms like Constellation Brands and Altria Group, known for their strong market positions.
• Defense and Aerospace: Companies such as Kratos Defense & Security Solutions offer exposure to government contracting and aerospace sectors.
• Gaming and Tobacco: Investments span casino operators and tobacco manufacturers, sectors known for consistent demand despite regulatory scrutiny.

Important Considerations

While the Vice Fund offers unique diversification benefits, its concentrated sector focus can result in higher volatility compared to broad-market funds. International exposure introduces currency and political risks that investors should evaluate carefully.

Additionally, the fund’s use of leverage and derivatives can amplify losses, making it important to assess your risk tolerance. Understanding share class fees, including differences between C shares and other classes, is key before investing.