Does Social Responsibility Hurt a Company's Bottom Line?
On Dec. 14, 2012, when Gerry Sullivan learned that a deranged killer had gunned down 26 people at Sandy Hook Elementary School in Connecticut, he looked into positioning his mutual fund in Smith & Wesson stock.
Shares of the gunmaker would plunge in the wake of the massacre, he reasoned. Then they'd slowly rebound as Congress ignored calls for stricter gun controls.
Using a Bloomberg terminal at his office in Summit, N.J., Sullivan watched the stock plunge from $9.54 on Dec. 13 to $7.74 on Dec. 18. That's when he pounced, initiating a position in Smith & Wesson in the $316.9 million Vice Fund (VICEX) he has managed since 2011.
At press time, Smith & Wesson shares were selling at nearly $14.
Cold-blooded? Unfeeling? Exploitive? In a way, that's Sullivan's stock in trade. The Vice Fund is one of the few remaining "sin" funds that advertise their investment in alcohol, tobacco, gaming and defense stocks. Proponents are generally indifferent to social issues, reasoning that any profitable company deserves a place in a good investment portfolio.
So-called sin funds, or what's left of them, occupy the opposite end of the spectrum from "socially responsible investing" funds, whose proponents emphasize investments that tend to benefit society. Sullivan mostly scoffs at what he sees as the flawed motivation of such do-gooders. "I couldn't say no to the Smith & Wesson trade," he says. "I think you should align your investing philosophy in a way that preserves your capital and gives you income and appreciation over time. My only bias is: Does the stock fit in
