Unlike other entertainment-related businesses, companies that operate casinos often are included with other so-called vice industries, such as those that profit from tobacco, alcohol, weapons and pornography. Investing in the stocks of companies that operate casinos might not be exactly like rolling the dice in Vegas, but there are some big risks that accompany the big potential payoffs. Reduce your risk by investing in gaming stock mutual funds.
Socially Conscious Investing
Socially conscious investing, sometimes called ethical investing, relies on a sense of moral obligation to use your money to further the common good. More than 150 of these socially conscious mutual funds, which eschewed the stocks of companies involved in alcohol, weapons, tobacco and gaming, held more than $2.7 trillion in assets as of 2010, according to the Kiplinger website. While ethical investing might be good for your soul, it might not do much for your pocketbook. Kiplinger reports about 65 percent of such funds lagged behind general market averages for the five- and 10-year periods ending May 7, 2010.
Gaming Stocks
When your investments broker talks about gaming stocks, he's not referring to video games. He's talking about the gambling industry. This includes companies that operate casinos, but the casino might only be a portion of a gaming company's business. For example, a major hospitality corporation might own a resort hotel that houses a casino, but it might also have interests in other industries such as television and film production. It's not uncommon for such companies to be highly leveraged, according to The Street website. This offers the opportunity for big rewards but also increases your risk.
Casino Mutual Funds
Diversification is one of the basic strategies for reducing risk, and it's one of the major benefits of investing in a gaming industry-focused mutual fund rather than trying to pick a winner among the multitude of companies that operate casinos. While some mutual funds focus their attention on companies that produce the majority of their income from gambling, other so-called "sin stock" mutual funds invest in firearms manufacturers, distilleries and tobacco companies in addition to gaming companies.
Considerations
Mutual funds that invest in casinos operate under the same basic rules and regulations as all other mutual funds. The Securities and Exchange Commission recommends doing your homework before shelling out your hard-earned money with any mutual fund company. Request a prospectus from the company and read it to determine what kind of companies it invests in, what its investment objective is and what kind of fees it charges.
