The Dallas-based Vice Fund has left political correctness to others and boldly gone where other mutual funds fear to tread — Sin City.
The four-year-old Vice Fund invests in casino stocks and in companies that make liquor, tobacco and bombs.
Given people's proclivities to drink, smoke, gamble and blow each other up, no matter the economic climate, it should come as no surprise the Vice Fund has been a consistent top performer.
It has beaten the Standard & Poor's 500 index in each of the past three years and is on track to repeat this year.
The Vice Fund holds Morningstar's highest five-star rating and over the past year ranks 22nd out of the 174 mutual funds that invest in midsize growth and value stocks.
"We have a history of outperforming the market," said Charles Norton, co-portfolio manager of the Vice Fund and principal at GNI Capital. "You soon realize that there is true investment merit in these sectors."
Merit indeed. Cigarette maker Altria Group, the fund's largest holding, is up about 33 percent over the past 18 months.
Another holding, London-based Diageo, which makes and distributes wine and spirits — including Johnnie Walker Scotch and Smirnoff vodka — is up about 32 percent for the same period.
In the gaming sector, one of Norton's favorites is Las Vegas Sands, which has doubled.
He says these sectors should perform even better — relative to the overall market — if the economy slows. as most financial experts predict. That's because people will smoke, drink and probably gamble during a recession.
The defense sector is essentially tied to the U.S. military budget and moves independently of U.S. economic cycles. But given the current geopolitical turmoil in the Middle East, no one is projecting big budget cuts in defense.
"Based on historical precedent, right now is the most opportune time to be invested in this fund," Norton said. "The reason is we are at an inflection point in the economy. We are already seeing signs of softening in the economy."
Not everyone shares this enthusiasm for the fund.
Hugh Johnson, chairman of Johnson Illington Advisors in Albany, N.Y., said although it's true sin sectors have outperformed the broader market in recent years, there's no assurance that will continue.
"The Vice Fund clearly has hit it right recently, where all four of those sectors are doing well at the same time," he said. "The odds are against that working all the time."
Further, Mark Luschini, head of asset management at Parker Hunter, a Pittsburgh money-management firm, said these four sectors are by no means all of the defensive plays.
Health-care stocks, utility stocks and other consumer staples, such as soft-drink companies and household products, should hold up reasonably well if the economy slows.
"The Vice Fund seems to be pretty narrowly focused," Luschini said. "I would be a little shy of being that tightly focused. You are leaving out a lot of prominent industry sectors."
Norton said, however, there are hundreds of companies to choose from in those four sectors, so "it's pretty broad-based."
Further, he said there are more nuanced strategies in vice investing than just playing on human weaknesses.
First, there are high barriers of entry into the sectors. For example, a limited number of gaming licenses are issued, and "you are not seeing any new tobacco companies that are starting up," Norton said.
Second, companies in these sectors are highly profitable, with excellent cash flow and solid management.
Third, many of these vice stocks, especially the distillers and tobacco manufacturers, have substantial overseas operations. Some Asian countries are opening up to U.S. gaming companies.
Las Vegas Sands is becoming "the most prominent player in the Asian gaming market, which is extremely fast-growing," Norton said. "There is even talk that Japan is going to allow casinos there for the first time."
Tobacco companies have faced litigation for years, but analysts say the legal risks are subsiding.
Tobacco companies have won three major legal victories over the past year, including the Florida Supreme Court upholding a decision to negate a $145 billion judgment. This was one of the last class-action cases involving the industry.
And finally, alcohol, tobacco, gaming and defense industries have been around for hundreds of years.
Fads come and go, but people will probably always engage in those activities, he said.
"In the case of the alcohol and tobacco industries, those products are never made obsolete by new technology," Norton said.
The Vice Fund, which has about $53 million in assets, is the only mutual fund tracked by Lipper that focuses solely on sin stocks.
The fund has the option of investing 20 percent of its assets in sectors other than those related to vice, but currently it doesn't. The minimum investment is $4,000.
Obviously, some investors have moral objections to investing in these kinds of industries. There are so-called socially conscious mutual funds that won't buy any sin stocks.
Norton said although he is respectful of their objections to these sectors, all of the activities are legal.
"It is sometimes misunderstood that we are advocates of smoking and drinking," he said. "The fact is we are not making any social commentary on that at all. They are products being sold, and it is our job to analyze the fundamentals."
Many mutual funds own shares in tobacco, gaming, alcohol and defense companies, Norton said.
"We just happen to focus on these sectors because we believe they offer true investment merit," he said.
17. Massachusetts Voters Reject Ballot Initiative on Wine in Grocery Stores (Massachusetts)
Source: USA Today
November 8, 2006
BOSTON (AP) - Massachusetts wine drinkers will not be able to pick up their favorite bottle of red or white while shopping for food after voters rejected a ballot initiative that would have allowed sales in grocery stores.
The battle over wine sales, known as Question 1, was the most expensive ballot question campaign in state history, with opposing sides combining to spend more than $11.5 million..
Question 1 opponents, primarily a well-financed coalition of independent liquor store owners and beer distributors, staged a furious come-from-behind victory to block the supermarkets from moving in on their territory. With 99% of precincts reporting, 56% of voters opposed the measure while 44 supported it.
Polls taken two weeks before the election showed Question 1 favored by a two-to-one margin among those surveyed. The opponents blitzed TV and radio airwaves with ads portraying the proposal as a public safety issue. They claimed teenagers would be more likely to obtain alcohol because convenience stores also could apply for wine licenses if the question were approved.
"All we did was tell (voters) there was more to this than convenience," said Question 1 opponents spokesman Doug Bailey. "There is a social cost and a public safety cost. The only way to find out what that cost is was to approve the question. And the voters determined that was too much of a gamble."
Dominic Campochiaro, 68, agreed.
"That's going to give some young kids an opportunity to go in there and buy (wine). I'm not in favor of that," said Campochiaro, a lifelong resident of Boston's North End.
Supporters of Question 1 also were well-financed and employed ads to emphasize consumer convenience and remind voters that most other states already allow such sales.
Chris Flynn, president of the Massachusetts Food Association, said voters "were misled by a negative, scare campaign" by his opponents' emphasis on the fact that the initiative would allow convenience stores, gas stations and mini-marts - not just supermarkets - to apply for wine licenses.
18. Distilling the Shift in the Wine Vote (Massachusetts)
By Bruce Mohl -Boston Globe
November 9, 2006
Officer's message may have turned tide
The tough talk of Somerville Police Chief Robert Bradley may have turned the tide against Question 1.
One day after a poll showed voters were prepared to overwhelmingly approve the ballot question, which would allow more food stores to sell wine, Bradley got the chance to play a starring role in the campaign that defeated it by 56 percent to 44 percent.
The turnaround in the most expensive ballot question in state history began Oct. 28, when strategists for the liquor industry tested their ads and the ads of the supermarket industry on two focus groups of undecided voters. They discovered the voters were skeptical of both multimillion-dollar ad campaigns.
At the end of both sessions, the strategists showed a snippet of tape filmed earlier that day of Bradley talking from the gut about his concerns about Question 1. The reaction from the voters was instantaneous.
"They said put him on the air. They understood what he was saying and said he was believable," said Joseph T. Baerlein, president of Rasky Baerlein Strategic Communications, which ran the Vote No campaign. "Chief Bradley cut through the clutter."
Chief Robert Bradley of Somerville appeared in an ad
Opposing Question 1. His message might have defeated
the wine sales question.
Baerlein's group filmed Bradley in uniform in his office the next day, edited the comments until early the next morning, and then rushed the 30-second commercial onto the air that night.
The commercial was powerful because Bradley didn't mince words or qualify his statements. In fact, he seemed almost angry. He warned voters that Question 1 would dramatically increase the number of liquor licenses in Somerville.
"It's not just about wine in supermarkets," he said.
"It's about convenience stores. It's about gas station minimarts being able to sell alcohol. That's what we're talking about here. Don't be fooled by Question 1."
Over the next eight days, the Bradley ad was seen an estimated 11 to 15 times by the women voters the campaign was targeting. Men, especially men under 40, were firmly in support of allowing more food stores to sell wine, Baerlein said.
Polls have indicated that the commercial had a dramatic impact.
A Globe-CBS4 poll on Oct. 27 showed Question 1 passing by 19 percentage points, but that lead quickly evaporated as the ad shifted the political debate away from shopping convenience, where the supermarkets had an advantage, and cast Question 1 as a radical change in state liquor laws that could have ominous implications for public safety, drunk driving, and underage drinking.
Bradley's ad helped derail Question 1 almost everywhere except his hometown, which approved the measure by a 53-to-47 margin.
Bradley did not return telephone calls yesterday.
Christopher Flynn -- president of the Massachusetts Food Association, which represents the state's supermarket industry -- said a police officer in uniform at his desk talking frankly to voters sent a powerful message, so powerful that Flynn's group filed a complaint against Bradley with the State Ethics Commission.
"In the end, the message scared people," Flynn said. "They didn't run a campaign against wine at grocery stores. They ran a campaign against alcohol at convenience stores, gas stations, and minimarts."
Supermarket officials said they wanted to craft the proposed law to exclude convenience stores, gas stations, and minimarts, but concluded that they couldn't because ballot questions have to apply equally to all communities.
"We may have made a strategic mistake there," Flynn said.
Flynn said his group had convinced Mothers Against Drunk Driving, the Massachusetts Municipal Association, and several chiefs of police associations to remain neutral, but neutrality didn't translate into public support.
By contrast, liquor stores solicited the support of more than 40 police chiefs, dozens of officials, the top two officials at the Alcoholic Beverage Control Commission, and Ron Bersani, who sought tougher drunk-driving legislation after his granddaughter, Melanie, was killed by a drunk driver.
With Bradley and Bersani hammering away at Question 1 in radio and television ads in the closing days of the campaign, the supermarkets had no one to counter with.
Kim Hinden, the former registrar of motor vehicles, appeared in supermarket ads.
Perceptions of Hinden's objectivity, however, were undermined by her role as a paid spokeswoman for the group.
At a press conference in Newton the day before the election, the supermarkets trotted out Michele Gillen of Needham as a mother of two who was concerned about ads being run by the liquor industry.
What Hinden, Gillen, and other campaign officials who were at the press conference did not disclose was that Gillen was Hinden's sister.
"I didn't want her to do it," Hinden said yesterday. "She felt very strongly about it."
The supermarkets also did not have the personal connection with voters that the package-store owners did.
These package-store owners were out in force at the polls on Election Day, reminding neighbors that their business was on the line.
"I saw a no vote as a vote for the little guy," said Emily Saffer, a Brookline voter.
19. Some See Fresno's DUI Crackdown as a Model (California)
By Larry Copeland - USA TODAY
November 6, 2006
FRESNO, Calif. — It's a Saturday night in Fresno, which means another "bar sting" at another nightclub. This one is at Crossroads, a red-and-white themed bar on North Cedar Street popular with bikers. As closing time nears, undercover police stake out the parking lot and look for departing customers who appear to be drunk.
One officer observes a man walking unsteadily as he leaves the bar. When he gets in his SUV and starts to drive off, other officers swoop down on him. The officers find a loaded Glock handgun in the center console. The man's friend, who owns the SUV, walks over to show the police his concealed weapons permit. But he's been drinking, too, and the permit is void if he's intoxicated.
They arrest him, too.
Fresno may be the toughest city in the nation on drunken drivers. An intoxicated motorist is more likely to run into a police checkpoint in this city of 461,000 than anywhere else in the USA, according to Fresno police. Police sneak into the driveways of convicted drunken drivers to plant Global Positioning System tracking devices on their cars and search their homes for evidence they've been drinking.
Fresno's hard-as-nails approach to drunken driving comes at a time when some police, prosecutors, probation officials and traffic safety advocates are calling for stepped-up efforts to reduce the death toll from drunken driving. After declining steadily for nearly 20 years, the number of people killed each year in alcohol-related crashes leveled off — at 16,000 to 17,000 — in the mid-1990s and hasn't dropped significantly since.
Most people who drive drunk don't get caught. Only about 1 in 50 alcohol-impaired drivers is actually arrested, says Susan Ferguson, senior vice president for research at the Insurance Institute for Highway Safety, a non-profit research organization supported by auto insurance companies. "What it amounts to is an awful lot of people who are driving impaired in this country who have no fear of being arrested," Ferguson says.
Many of those who do get arrested don't stop driving drunk. About a third of all drivers arrested for drunken driving are repeat offenders, according to Mothers Against Drunk Driving. The group says 50% to 75% of drivers whose licenses are suspended or revoked for DUI continue to drive without a license.
Those numbers are unacceptable to some fed-up police, probation officers and prosecutors, who are using increasingly aggressive tactics to reduce drunken driving:
•In Nassau County, N.Y., on Long Island, District Attorney Kathleen Rice won a rare murder conviction last month in a drunken-driving case. Insurance salesman Martin Heidgen, 25, was convicted of second-degree murder in the July 2005 deaths of Katie Flynn, 7, and Stanley Rabinowitz, 59, who was driving the limousine that Heidgen struck head-on. Heidgen had been driving the wrong way on Meadowbrook Parkway. Katie and her family were being driven home from a wedding. Heidgen, who faces a maximum prison sentence of 25 years to life, will be sentenced later this month. His attorney says he will appeal.
"We would hope that this verdict sends a message that if you drink and drive and kill someone, you will be prosecuted for murder," Rice said after the conviction. She no longer allows plea deals in drunken-driving cases and plans to use a state grant to buy high-tech alcohol-detecting ankle bracelets for convicted drunken drivers who are required to stay sober as part of their probation.
•The Riverside County Probation Department in California this year began tracking up to 130 repeat offenders with a 2-½ ounce tracking device armed with GPS technology. The device, which can be worn as a bracelet or anklet, alerts authorities in less than one minute when a convicted DUI offender enters a bar, says Michael DeGasperin, director of the department. Many of the felony DUI offenders in the cities of Temecula, Murrieta and Perris already wear a similar device, a Secure Continuous Remote Alcohol Monitor (SCRAM) ankle bracelet that measures the alcohol in a person's system by collecting minute sweat samples.
"Both are good deterrents in trying to out-fox the fox," DeGasperin says. "We want it to be a little intrusive and Big Brother-ish to get them to raise the white flag and come to us to seek help before they're involved in another accident."
•More than 30 states have enacted additional penalties for so-called "high-risk" drunken drivers, those with a blood-alcohol content of .15% to .20%. The legal limit in all 50 states is .08%. Twenty-eight states assign prosecutors to focus on drunken driving. Five states — Maine, North Carolina, Utah, Virginia and Wisconsin — have lowered the maximum blood-alcohol content for repeat offenders to varying limits below .08%.
Changing the culture No place has gone as far as Fresno. Its crackdown on drunken driving and other traffic violations began when Jerry Dyer, who has been on the police force since 1979, became chief in 2001 and realized that more people in his city were being killed in automobile collisions than in homicides.
"Back in 2002, we had 43 murders in our city but we had 52 people die in fatal collisions," he says. "We know the individuals killed in homicides are generally associated with a certain lifestyle or they're in domestic situations. But the individuals being killed in traffic collisions are people like you and me, minding their own business, when somebody drunk runs a red light and kills them.
"I vowed at that time to change the driving culture in Fresno."
He hired 92 new officers, boosted revenue from traffic fines by $5 million a year and cut drunken-driving deaths. Fresno also began warning those convicted of DUIs that, while they were on probation, GPS devices might be attached to their cars.
In September, MADD gave Fresno police its "Outstanding Law Enforcement Agency" award. "I wish other departments throughout the nation would take the initiative to do what Fresno is doing," says Glynn Birch, MADD's national president. "For the past 10 years, the numbers (of drunken-driving fatalities) have plateaued. We need to re-energize the nation."
Last year the International Association of Chiefs of Police recognized the department for having the best impaired-driving program in the nation. Fresno police officers attend law enforcement seminars where they tell other cops what they're doing here.
The Fresno experiment might be difficult for some police departments to duplicate at a time when cops around the country are being stretched thin by federally-mandated homeland security duties, increases in violent crime and, in some rural and small-town areas, the first-time appearance of gangs.
But research has shown that police departments that strictly enforce traffic laws make an impact on other crime, says John Grant, manager of the division of state and provincial police at the IACP.
"In some agencies, it's not viewed as fighting real crime," he says. "It's not the glamorous thing. But one thing that virtually all criminals have in common is use of an automobile, whether it's in the planning, the perpetrating or the escape from their crime. And very often, they don't pay attention to traffic laws."
A few miles from the bar sting operation, Fresno police are working yet another DUI checkpoint. This one, at Ventura and R Streets, is marked by a large sign telling drivers: "Check Point Ahead. DUI and License." A line of orange cones funnels drivers into two single lanes, where police officers check every third motorist's driver's license and look for signs of intoxication: slurred speech, bloodshot eyes, the smell of alcohol. Many drivers already have their windows down and licenses held up for inspection as they approach the brightly lit checkpoint.
"The word's out in this town," says Detective Mark Van Wyhe, who coordinates the police department's Repeat DUI Offender Program. "They know we're out here."
Dozens of checkpoints They should. The city ran 94 DUI checkpoints last year, more than any other city in the nation. The checkpoints, at different times and places, are set up on weekends.
Fresno's bar stings generated controversy when police started them last spring. "There were lots of threats, but no legal action," says Capt. Andrew Hall, commander of the police department's Traffic Bureau.
Initially, plainclothes police staked out the inside of bars, watched customers consume too much alcohol, then alerted fellow officers outside, who arrested the drunks as they drove off. To defuse the controversy, the officers were moved to the parking lots of the targeted clubs, Dyer says.
Police also run "courtroom stings," monitoring courtrooms where drivers cited for traffic violations are appearing. In many instances, judges suspend the motorists' licenses. The police officers follow them to their cars and arrest them if they drive off. They also conduct "probation and parole sweeps," searching the homes of convicted drunken drivers for evidence they've been drinking. In some instances, police arrest probationers because other family members have beer cans or liquor bottles in the home.
"We're seeing a real change of attitude," Hall says. "People who are planning on going out drinking are now planning alternative rides home. That's one of the exciting things about what we're doing, is the number of designated drivers we're seeing."
Enforcement or snooping?
When Fresno police launched the bar stings in March, it touched off a public outcry in the press and on talk radio. Fresno Bee columnist Bill McEwen questioned the wisdom of allowing a person who is obviously drunk to drive even a short distance. He said the bar sting "smacks of Big Brother."
Dyer says he modified the sting operations primarily because of concerns about potential police liability. While the stings were temporarily halted, a 35-year-old mother was killed by a driver who'd allegedly gotten drunk at one of the bars where police had conducted a sting. "We reinstated the program the following day," he says. "As a result of the death, the bar operation was widely accepted. The vast majority of restaurant owners and bar owners are supportive" of the modified approach.
McEwen lauded the changes.
But Carrie Fagan-Davis, owner of Fagan's Irish Pub downtown, says she opposes the bar stings whether officers are inside the clubs or in the parking lot.
"It's not the American way to spy on people," says Fagan-Davis, 54. "The police should watch the streets for drunken drivers but don't watch the bars. It's the responsibility of the bar owners to monitor what they serve patrons. Anybody who's in a business of this type needs to be responsible. The last thing I would want is to have it on my conscience that an extra $4 drink caused somebody harm. I look at that as a blood dollar. I don't want it."
Fagan-Davis says her business is about 70% food and 30% alcohol. She says that for St. Patrick's Day this year she made sure patrons had arranged for designated drivers, encouraged them to use hotels and educated her employees on spotting someone who's had too much to drink. She says officials from the state Department of Alcoholic Beverage Control were impressed by her actions.
Bob Pierce, 49, has owned the Crossroads bar, where police set up a parking lot sting operation earlier this month, for six months. He says he is working to improve the bar's image. "We want to clean it up, bring in more older customers," he says.
Pierce says the stings "definitely hurt our business. I'd like to see a better way to do it. I'd like to see a business owners association figure out a better way."
Rogers Smith, a political science professor and civil liberties expert at the University of Pennsylvania School of Law, says the bar stings and surreptitious placing of GPS devices "are aggressive police tactics. They go right up against the boundary of what the police can permissibly do, but they don't cross it. There is nothing that constitutes a violation of a constitutional right or civil liberty."
On sneaking into a driveway to place a GPS tracking device, Smith says the issue is "whether an action to monitor you — whether it's wiretaps, filming, or whatever — invades a reasonable expectation of privacy. For most of us, to have a GPS device put on our car would violate a reasonable expectation of privacy. But you're talking about people who were given warning as a condition of their probation that they were susceptible to this."
The police here are cautious about claiming outright success, but they clearly believe that their aggressive tactics are working. There hasn't been an alcohol-related traffic death since May, says Hall of the Traffic Bureau. There were eight such deaths this year before the bar stings began, he says.
"We were on track to exceed the 2005 fatalities," Hall says. "That's when we decided we had to do more."
20. Pearl River Voters Say No to Liquor Sales (Mississippi)
November 8, 2006
PICAYUNE, Miss. - Residents of Pearl River County on Tuesday voted to remain dry, upholding a century-old law that bans the sale of hard liquor.
The county remains one of the state's 26 dry counties, meaning the government does not allow the sale of alcohol in some form.
"This is definitely a victory for families. Definitely a victory for families," said Steep Hollow Baptist Pastor Shannon Marshall. "And definitely a victory for teenagers."
The liquor referendum, if passed, would have lifted the county just north of the Louisiana state line out of its 1890 law banning spirits.
More than 54 percent - 7,279 - voted to stay dry while only 45 percent - 6,132 - voted to remove the ban, according to election results.
21. Agents Destroy Still; MS ABC To Use NABCA Grant To Warn Citizens About Dangers of Moonshine (Mississippi)
By Joseph McCain - The Winston County Journal
November 8, 2006
ABC agents tramped a well-traveled trail behind a house on Jimmy Dale Edwards Road to discover and destroy a large moonshine operation last Wednesday.
The agents seized and destroyed several items relating to the manufacture of the illegal whiskey after obtaining and implementing a search warrant.
The four-month investigation by Agent Don Smith into the illegal whiskey-making operation resulted in the seizure of a large still, 750 pounds of sugar, 19 gallons of moonshine, a 2000 Chevrolet truck, two electric hand pumps and a 2005 Honda ATV.
All the seized items were used in the 16 barrel operation which with the 250-gallon stainless steel cooker was capable of producing around 100 gallons of moonshine a week.
Agents examining the scene surmised that the four-wheeler was used to transport the illegal whiskey from the distillery to sheds near the home were the whiskey was labeled. The electric hand pumps allowed the person to pump directly from the barrels into the moonshine jugs placed on the back of the four wheeler.
The still was destroyed by agents after evidence was collected. The case will be presented to the Winston County District Attorney's office for further action and possible grand jury charges against Jimmy Dale Edwards, 65, for possession of a distillery..
Since July 1, 2006, state ABC agents have destroyed two illegal distillery operations. In the state's prior fiscal year that ended June 30, ABC agents destroyed a total of 12 stills. "Moonshine investigations are a big part of what we do," said Mark Hicks, Chief of Enforcement for the state ABC. "This type of investigation can consumer hundreds of man hours before an arrest is made. It's hard work."
Chief Hicks also announced plans to get the word out about the dangers of drinking moonshine. A grant from the National Alcohol Beverage Control Association (NABCA) allowed the Mississippi ABC to print posters about the dangers of drinking moonshine. "You will soon see these posters at courthouses and public buildings, and hopefully it will prompt citizens to report violations," said Hicks.
22. Voters in Southwestern Michigan City End Century-Old Alcohol Ban (Michigan)
November 8, 2006
ZEELAND, Mich.- Voters in Zeeland have decided to be dry no more.
The small southwestern Michigan city with a conservative Dutch heritage has ended a century-old ban on alcohol sales.
The ballot measure is intended to attract more visitors to the city's quaint but struggling downtown.
It will be at least a year before the city council can issue the first liquor licenses to restaurants or grocery stores.
In the meantime, opponents plan to ask for a recount. The effort passed by just 40 votes last night. Voters rejected a similar proposal in 1989.