KEY POINTS:
Dan Ahrens thinks tobacco is a "horrible product", he hopes his child will never smoke and he thinks firearms should be outlawed.
Yet the Texan has no qualms about encouraging clients to put money into tobacco and arms companies, as well as gambling and alcohol stocks.
As manager of the Vice Fund he oversaw about US$48 million ($68 million) in investments in companies that ran casinos, sold beer and cigarettes, and made weapons.
"An investment is not an endorsement and people who think it is are fooling themselves. Tobacco, for instance, is a horrible product and I hope my child will not smoke some day. But it is legal, and people who want to smoke should be allowed to smoke," he told the Business Herald.
"Investing is about making money. These are legal, regulated corporations offering legal products or services to consenting adults. Why not invest there, whether or not I like their products? People can use their profits to donate money to good causes they believe in, if they choose."
He quit the Vice Fund in late 2005 after legal problems at its parent company but under his management it was a stellar performer.
According to its prospectus, it devoted at least 80 per cent of assets to companies that derive "a significant portion of their revenue from products often considered socially irresponsible".
During his last year with the fund which he started in 2002, it was the best performing US growth fund with an annual rise of 20 per cent.
"No matter what the market is doing, people are going to continue to drink, continue to smoke and continue to gamble," the 40-year-old father of one said at the time.
"There's a number of good reasons why vice stocks have outperformed the wide market in recent years," he said this week.
The Vice Fund's performance was due to a booming gaming sector, favourable legal rulings in tobacco industry legal suits after the stocks had been very undervalued and military action, including the Iraq war boosting defence stocks.
"In the long run Vice can offer great consistency. Its hard to say whether it will consistently outperform the wider market."
On the other hand he says socially responsible investment funds "are consistent underperformers as a group, although there are some very good ones".
"Most are index funds or index-like funds, whose expenses are higher than most indexes. They also own the same stocks as most large diversified funds or index funds, but have many very good stocks [like gaming stocks] removed thereby hurting performance."
His new company, the Gaming and Casino Fund, concentrates on gambling stocks. "Gaming has the most continued growth potential," but he says there's no company he wouldn't invest in on moral or ethical grounds.
"Some companies with moral or ethical problems are poor investments because of it. Think of Enron, a company that was owned by a great number of socially responsible funds. It was a very good investment until it all fell apart in scandal."
Reputation for honesty helps explain why we don't have an SRI index
In Britain, the FTSE4Good Index provides information measuring the performance of companies that meet globally recognised corporate responsibility standards including data on carbon footprints.
It helps fund managers and other investors make SRI decisions, but New Zealand Exchange chief executive Mark Weldon says such an index is not yet warranted here.
While Europe has had clearly defined policies around carbon emissions on which corporates had to report, New Zealand at this stage doesn't. However, as governments moved toward policy around carbon allowances and carbon footprints, that would be information NZX would look to develop.
Although the FTSE4Good index provides investors with a valuable source of information about the environmental, labour, and other relevant practices of a vast number of listed companies, many of them global operations, there simply was not a sufficient number of local or even overseas companies listed here to justify a similar index.
"Everybody pretty much knows what companies like The Warehouse and Fletcher Building do to some extent, so the value of that search function is a lot lower.
"As a consequence of the global focus on sustainability, there are a lot of funds just started in the Northern Hemisphere looking for this information to invest. Our understanding of it is that they're willing to invest in New Zealand anyway without such an index because of our general reputation for honesty and because of other factors."
