The Wall Street Journal reported today that one of the largest “socially responsible” mutual fund families may become a little less responsible in the future.

Pax World Funds will ask their shareholders to eliminate a zero-tolerance policy that bans investments in alcohol and gambling related companies. The change would allow Pax to consider a company’s “entire social responsibility profile” whatever that is supposed to mean.

The shareholders will also vote whether or not a company’s environmental record should be considered by managers before investing.

One of the main reasons that Pax is considering investing in “sinful” activities is that the returns on their “pure” portfolios is badly lagging the market. In the hyper competitive world of mutual funds lagging returns eventually leads to lower fees and profits for the fund companies. Also alcohol and gambling stocks in particular have been very rewarding for investors for the last several years as casinos have exploded all over the world. Anyone who has ever been in casino knows that they aren’t in business to lose money.

The Journal also mentions that the Vice Fund which specifically invests in sin type stocks has retuned 20% a year for the past three years versus less than 10% for the more politically correct Pax World Balanced Fund.

Conservatives have faced the same dilemma with the Timothy Plan mutual funds who in addition to avoiding alcohol and gambling also forbid investments in companies that are involved with abortion, pornography, anti-family entertainment and promotes non-traditional married lifestyles. Their returns have lagged the market as well.

This reminds me of a story many years ago when the liberal enclave of Takoma Park, Maryland voted not to do business with any company that had ties to the military. The only problem was that the only company willing to supply them with radios for their police cars was Motorola which had defense contracts. The lefties had no choice but to make an exception.

Maybe we should call this “socially responsible and whatever is convenient and profitable” style of investing. After all who needs priciples?

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