The debate about socially responsible investing versus investment in "sin" stocks like tobacco, alcohol and gambling has been going on for years.
Now it's likely to move up a notch with reports that money managers in Germany are setting up new fund that focuses on firms that derive a significant portion of their revenues from 'unethical' industries like casinos, weapons, tobacco and alcohol.
Leaving aside questions about the exorbitant fees in this fund – 18 per cent in the first year and five per cent each subsequent year – it does raise questions whether vice is a good spot for hedging investments in an uncertain economy. Some would say that tough economic times do not stop gamblers from gambling, drinkers from drinking, or smokers from smoking. Indeed, tough times may give people more reason to indulge in smokes, drinks, and gambling.
There's nothing new in this. The US, for example, has a Vice Fund which sinks money into tobacco, gambling, defense/weapons, and alcohol.
But are these good investments? Probably not given the sort of fees these unscrupulous operators are charging.
As Business Insider says, it doesn't make sense to invest in these sorts of funds because of the fees they are pulling out of investors.
And for all the hype, more detailed analysis shows there is little difference in the performance of shares in socially responsible investment and stocks focused on adult entertainment, alcohol, gambling, nuclear power, tobacco, and weapons.
That makes sense. The performance of a company has more to do with its management and the market, regardless of whether the goods are sinful or not. Investing in sin isn't more profitable, it's just a marketing gimmick,
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