If you are searching for good ideas for investing in 2015, you may want to take a look at the USA Mutuals Barrier Investor Fund (VICEX) — better known to investors as the Vice Fund.
VICEX is the only mutual fund that invests primarily in the following industries: aerospace/defense, gaming, tobacco and alcoholic beverages (hence the name).
These four industries were chosen because they demonstrate one or more of these “compelling and distinctive investment characteristics,” according to the USA Mutuals objective summary of the Vice Fund:
- Natural barriers to new competition
- Steady demand regardless of economic condition
- Global Marketplace — not limited to the U.S. economy
- Potentially high profit margins
- Ability to generate excess cash flow and pay and increase dividends
The “barriers to new competition” aspect that is highlighted by its formal name can be seen in some of its top holdings, such as tobacco titan Altria Group Inc (MO) and multinational airplane manufacturer Boeing Co (BA).
How many competitors can grab significant market share away from these behemoths? Not many — at least not until people quit buying Marlboro cigarettes or when some other manufacturer can build a high-quality 787 airplane. Some investment researchers and analysts might call this competitive advantage a “wide moat.”
Why the Vice Fund?
So … how might the Vice Fund perform in 2015?
Unless you see no end in sight for this long economic growth period and aging bull market, consumer defensive stocks and mutual funds that invest in them should be on your radar screen now. Tobacco, alcohol, gaming and weapons/defense are considered consumer defensive industries because they can thrive regardless of the economy as a whole. In fact, they often have the potential to perform better when times are uncertain.
The last time consumer defensive stocks, also called consumer staples, significantly outperformed the S&P 500 Index was in the latter years of the last bull market, 2006 and 2007. In those years, VICEX gained 23.2% and 17.8%, respectively, compared to the S&P 500, which gained a respective 15.8% and 5.5%.
With that said, investors should be cautioned that VICEX is not a pure consumer defensive stock fund.
The portfolio recently consisted of just under 50% in consumer defensive stocks. The other 50% is roughly split between industrials and consumer cyclicals. Therefore, performance isn’t always highly correlative with the consumer defensive sector.
Looking forward, it is difficult to see how the Vice Fund may perform compared to the broader market. One contrarian indicator is that VICEX is far behind its large blend category peers with a 98th percentile rank and far behind the S&P 500. The last time it had such a poor rank was in the early recovery of 2009, when the Vice Fund was also ranked 98th.
But in 2010, the performance rank jumped to the top 10%.
If you’re not a market timer, and you are not comfortable waiting more than a year to see positive results, VICEX isn’t for you. This is a heavily defensive fund that does its best work over the long-term through thick and thin. To wit, the fund has beaten the S&P 500 over the past five and 10 years.
The expenses are above average at 1.47% and the minimum initial purchase amount for VICEX is $2,000.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.
