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"Sin Stocks" Sink in Wall St. Meltdown

But booze and tobacco "vice" funds may weather the storm better than most.

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By Jason Gotlieb

08/09/11

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So-called "sin stocks," seen as a safe haven for investors in desperate times, are struggling. Many alcohol, tobacco and gambling companies are losing money amid the economic carnage that saw the Dow Jones plunge by 5.6% yesterday, after Standard & Poor's downgrade of the US credit rating. Financial insecurity means consumers are cutting back on life's little pleasures—which are also being taxed to the point where a pack of Marlboros costs $14.50 in midtown Manhattan. But Gerald Sullivan, the manager of USA mutual's "Vice Fund"—a 42-company portfolio consisting exclusively of stocks in cigarettes, alcohol, gambling and defense—insisted that these industries will still weather the ongoing crisis better than most, as their diversity offsets risk. The Vice Fund has fallen in the past three months, but is still up for 2011, and comfortably bettering the battered S&P 500 Index. Top performers include London-based drinks giant Diageo—with eight of the world's 20 biggest beverage brands—and US tobacco company Lorillard. The relative buoyancy of Vice owes much to the growing middle classes in countries like China, Russia and India, who have money to burn on cigarettes and alcohol—and are increasingly likely to purchase premium international brands.

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