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Toast the New Year With These 'Boozy' Funds

Richard Widows

Large-cap value, utilities, REITs, precious metals, China and large-cap growth came into and out of vogue with numbing regularity.

So to appropriately cap off 2007, we have a list of funds likely to gain and then lose popularity in just a matter of hours.

Assuming you bid adieu to 2007 at a New Year's Eve party, the mutual funds on the accompanying list might appear enticing at around 11:59 p.m. But six or seven hours later, the thought of them is likely to make you roll over in bed and beg for an aspirin.

Each of the funds in the adjoining table has more then 6% of its net assets invested in a group of alcoholic beverage stocks. The 24 selected stocks are from the Dow Jones beverage brewers index and that organization's distillers and vintners gauge, as well as other large domestic and international firms in the alcoholic beverages business.

In all, 1,386 open-end mutual funds have positions totaling $39 billion in the selected alcoholic beverage stocks. In addition, 139 exchange-traded funds hold positions with a combined value of $4 billion in the group while 41 closed-end funds hold an aggregate value of $492.6 million in the purveyors of intoxicants.

Even though Fortune Brands (FO Quote) -- distributor of Calvert alcoholic beverages -- is among the stocks on the adjoining list, you will not find any socially responsible Calvert Group of mutual funds anywhere near the roster of funds holdings those stocks.

In fact, what might be accurately described as the antithesis of Calvert offerings and other socially responsible funds, the MUTUALS.com (VICEX Quote)Vice Fund (VICEX) sits comfortably atop the open-end mutual fund section of the list with 23.77% of its portfolio devoted to the selected alcoholic beverage stocks. In addition to booze, the VICEX portfolio focuses on tobacco, gambling and the defense industry.

(The Vice Fund's manager, Charles L. Norton, is a contributor to RealMoney.)

Its largest portfolio holdings are Altria Group (MO Quote) and Carolina Group (CG Quote), with beverage giant Diageo (DEO Quote) not far behind.

Another concentrated play on the alcoholic beverage industry is the newly debuted (Nov. 30, 2007) FocusShares ISE SINdex Fund (PUF Quote). Besides the alcohol industry, this ETF concentrates its investments on gambling and tobacco. Its largest portfolio holdings are Bally Technologies (BYT Quote) and UST (UST Quote).

Ever wondered whether alcoholic beverage stocks are consumer discretionary or consumer staple investments? The definitive answer comes from no less an authority than mutual-fund giant Fidelity; as you can see in the adjoining table, the (FDAX Quote)Fidelity Select Consumer Staples Portfolio (FDFAX) -- note the word "staples," meaning nondiscretionary, in its name -- holds 10 of the hangover stocks, making up 7.72% of its assets.

Its largest holdings are Procter & Gamble (PG Quote) and Coca-Cola (KO Quote).

Fidelity isn't alone in its view. Four other funds in the table confirm that the bottle of Jack Daniels belongs on the shelf next to the extra virgin olive oil as a component of your inventory of consumer "staples" (but out of the reach of the kids, of course). With phrases like "consumer staples" or "consumer non-cyclical" embedded in their names, they leave no doubt.

If the likes of Fidelity, ICON Funds, Rydex Investments, Barclays/iShares and Wisdom Tree imply that alcohol is a "staple" for consumers, who is to say otherwise?

In general, the funds on this list have given investors no cause to place ice packs to their heads. Of 23 members of the group for which 12-month performances are available, 18 have outperformed the S&P 500 total return index over the dozen months ended Nov. 30.

For the past three years, 15 of the 18 funds for which sufficient history is available have outpaced the S&P.

Of 21 funds in the group with sufficient track records (three years) to be rated, fully 11 have achieved grades from TheStreet.com Ratings in the "A" range. They are kept company by five more that earned marks in the "B" range to qualify for "buy" recommendations. One of the funds rated a "C+" for a status of "hold" while four were in the "D" and "E" ranges, which equate with "sell" recommendations.

(If you're interested in investing directly in alcoholic beverages, click here to read why champagne is getting better and here for a list of bubbly that won't leave your wallet flat.)

Before anyone becomes intoxicated by any of the funds on the list, a crucial factor that investing and imbibing in alcohol have in common should be kept in mind: caution and moderation above all.

Have a happy and very prosperous New Year!