Sin may pay, but Obama is ethical investors' hope
LONDON (Reuters) - The combination of recession and efforts to jump-start economies can be an investment headache.
In recessions, vices like tobacco and alcohol win ground among those daring enough to buy shares. But if Barack Obama's plans to invest in clean energy and tighten regulation set a trend, growth plays in worthier sectors may also reward.
This mix of slowdown and conscientious investment suggests that while a sprinkling of traditional defensive vice may help short-term, some ethical stocks could benefit too.
Received wisdom among fund managers is that the next generation of fund products will be designed to be "back to basics', easy to understand. Among classic defensive plays, companies focusing on human habits fit that bill squarely.
"People will not stop smoking in recession, they might even smoke more because they are nervous," said professor Andrew Clare, chair in asset management at London Cass Business School.
"Whatever happens people need cigarettes and do not tend to cut back on alcohol," he said.
Amid the fracas of recent months, many investments in classic defensive sectors -- of the type offered by a U.S.-based fund that uses the idea of "vice" as its promotional gimmick -- have fallen less sharply than the broader market.
British firm Imperial Tobacco on November 25 reported an annual adjusted earnings increase of 15 percent, despite smoking bans enforced in Britain and other Western countries.
In the year to November 30 the stock declined by 31.2 percent, but still outperformed the FTSE 100's 35.8 percent fall. British American Tobacco fell by just 14.6 percent over the period, and drinks producer Diageo also outperformed, falling 18.1 percent.
More ethical, or socially responsible, funds have to date shown a marked underperformance, but the changing tune coming from the United States could give some a lift.
"My view is that the clean energy sector will be one of the first to come out of the recession," forecast Nick Robins, senior analyst on Socially Responsible Investing at HSBC and author of a book, "Sustainable Investing."
DEFENSIVE VICE
Investors prepared to look beyond the obviously addictive products such as alcohol and cigarettes to invest in gambling and weapons manufacturers in the aerospace industry could explore the "Vice Fund," which covers just these four sectors.
Data on its Web site shows the fund was hit by the market downturn but outperformed its benchmark of reference, the S&P 500, in the year to March 31, when it yielded a positive 4.44 percent return against a 5.08 percent fall for the index.
It underperformed in the first 10 months of the year, returning minus 37.5 percent versus the S&P's minus 34 percent. Continued...
