INVESTING IN CONTROVERSIAL INDUSTRIES LIKE GAMING

Investors who want to put money into “pure play” publicly traded horse racetracks can no longer do so because there is not one such corporation left.  Companies with their roots in horse racing like Churchill Downs (CHDN), Penn National Gaming (PENN), and Canterbury Park Holding Company (CPHC) have all expanded into gaming.  While most of these firms have performed well for investors, some individuals and mutual funds or ETFs won’t buy their stock because the bulk of their revenues comes from gambling.

The Wall Street Journal (February 14/15, 2015) reported on a mutual fund that recently changed its name from VICE to Barrier Fund (VICEX) to avoid some of the negative connotation that goes with the main industries it invests in:  alcohol beverages, defense/aerospace, gaming, and tobacco.  (The Barrier Fund tries to invest at least 80% of its assets in these four industries.)  The mutual fund’s name is meant to convey that the four industries have significant barriers to entry and thus are moat-like.

Over the past 10 years, the Barrier fund had an average annual return of 8.3% compared to the S & P 500’s average of 7.9%.   By contrast, the Vanguard FTSE Social Index Fund (VFTSX) returned 7.2%.  The Vanguard Index tracks “a benchmark of large- and mid-capitalization stocks that have been screened for certain social, human rights, and environmental criteria.”

The major holdings of the Barrier Fund include several prominent gaming companies, such as Wynn Resorts, MGM Resorts International, Las Vegas Sands, and Galaxy Entertainment Group in Hong Kong.

While alcohol beverages, defense/aerospace, gaming, and tobacco are not recession proof industries (there is no such industry), they are recession resistant.  The only down year for the Barrier Fund in the last 10 years was in 2008, one of Wall Street’s worst years ever, when the Fund lost 41.57%.

The returns produced by gambling-related companies, including those owning horse racetracks, are generally impressive.  Whether such investments belong in one’s portfolio is, of course, a matter of individual choice.  What is a “controversial” line of commerce is in the eye of the beholder.

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Interestingly, because a person owns, trains, or rides racehorses does not mean, ipso facto, that he or she is in favor of gambling.  For instance, in the 1950s and 1960s, non-betting Mormons Rex Ellsworth (owner) and Mesh Tenny (trainer) had a powerful stable that included the great Swaps.  Other examples:  While there is betting on the Dubai World Cup, none is permitted at the Meydan Racecourse where the event takes place.  Well-known retired jockey Pat Day turned Christian evangelist may bet, but it is doubtful.

Copyright © 2015 Horse Racing Business

(Note:  Horse Racing Business is not recommending an investment in the Barrier Fund or a gaming stock, as each person needs to do his or her own due diligence and weigh the fees and risks of a particular stock, ETF, or mutual fund.  In addition, past performance may not be a good indicator of future performance.)

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