Wednesday, October 20, 2010

Vice Versus the S&P 500: VICE Wins!* (VICEX)

*For the last year anyway. And five years. And three months.

We first looked at the profit to be had by being naughty back in April 2007:
Moral Judgment On 'Sin Stocks' Means Higher Returns For Vice-Friendly Investors
...Prof. Hong lists his research interests as: 
"Asset pricing with less-than-fully-rational investors; differences of opinion, short-sales constraints and asset prices; social interaction and financial markets; career concerns, biased forecasts and security analysts; organization, performance and mutual funds; asset pricing with asymmetric information and other market imperfections."
Hey! Mine too!
Professor Hong has put together a pretty impressive c.v. including associate editor at the Journal of Finance and a Directorship of the American Finance Association. He hangs his hat at Princeton.

The post was one of the earliest that a WSJ blog linked to:
Blog Roll: The Wages of Sin
Writing at Climateer Investing, “Climateer” calls attention to a new research paper by Princeton professor Harrison Hong and University of British Columbia professor Marcin Kacperczyk suggesting that investors pay a price for not holding so-called “sin” stocks – shares of companies that deal in alcohol, tobacco and other vices. Such stocks can be had relatively cheaply, the paper suggests, because societal pressure prevents big, deep-pocketed institutional investors from buying them. But they can be sold rather easily because hedge funds and other less-constrained investors will always be willing to buy them.
Climateer points out that, given the growing social pressure in favor of “green” anything, shares of not-so-green companies (say, coal or Big Oil) may soon be desirable investments for similar reasons. “[A]s social pressure builds to be perceived as green — see Yahoo yesterday (”Our numbers suck, but we’re carbon neutral!”) — we should see an expanding green premium,” he writes. “[And] as the dirtiest, filthiest, vilest, Hitlerian energy sources are shunned (at least in polite company) their risk premia will shrink.”...
One proxy is the Vice fund, first mentioned in 2007 and again in 2008.
Here's the one year comparison chart, from Yahoo Finance:
Chart forVice (VICEX)

Here are the funds' holdings.
Here's the three year chart comparing VICEX with the S&P, the country's largest coal company (BTU) and the Wilderhill clean energy ETF (PBW):