Stoney, read the middle part. Guess who is opening up a new fund? LTS
New Mutual Fund Bets on the House
By Brett Arends
Mutual Funds Columnist
3/23/2007 10:29 AM EDT
URL:
http://www.thestreet.com/funds/mutualfundinvesting/10346036.html
Every gambler knows the house always wins. So doesn't it make sense to try to be the house?
That's what Dan Ahrens was thinking back in 2005. He was the founder of Mutuals.com's politically incorrect Vice Fund (VICEX) and author of "Investing in Vice: The Recession-Proof Portfolio of Booze, Bets, Bombs & Butts."
So when he went independent, he launched the Gaming & Casino Fund (GACFX). It's coming up for its first anniversary
This fund is a great idea. It gives you a cheap and diversified way to play the slots and the roulette wheels from the winning side of the table for a change. And it lets you spread your bets, instead of trying to pick one or two individual winners.
The fund holds shares in 40 different companies from slot-machine makers to casino operators, from regional players to Las Vegas and the new Chinese hot-spot of Macau.
But it's proven a tough sell, and Ahrens has raised just $3 million in assets so far -- not even enough for an ante in the high rollers' world of mutual funds. "I haven't spent any money on marketing or distribution," he explained when we spoke this week. "It costs a lot to start a fund."
So he's struck a deal that should finally get things moving. He's handing over the fund's marketing and administration to New York investment advisers Ladenburg Thalmann. The announcement may come as early as today.
Ahrens will stay on as the fund's "sub-adviser," which means he gets to focus on the fun stuff: Placing the bets.
"They're spread out over a few different areas," he says. "I believe in a concentrated portfolio. I would never want more than 40 stocks, but I'm diversified between Macau in the Far East and the U.S., between Las Vegas and the regional operators, between casinos, slot machine manufacturers and lottery operators."
He's put his biggest stack of chips on the Strip. "I like the big-cap names that are on Las Vegas Strip, and which have great exposure in the Far East," he says. His big bets include Wynn Resorts (WYNN) , MGM Mirage (MGM) and the Las Vegas Sands (LVS) .
"The Las Vegas Sands is going to do very, very well in the Far East," Ahrens predicts. Not only are they in Macau, but "they have been given one of only two casino licenses in Singapore, and Singapore has said they're not going to issue any more for at least a decade."
He's also betting on controversial Melco PBL (MPEL) , the new Macau venture backed by the sons of Australian tycoon Kerry Packer and Chinese gambling king Stanley Ho. It had a big IPO last fall but has already taken a tumble.
"A lot of investors in the U.S. don't really understand the company," Ahrens says. "They try to compare it to Las Vegas Sands. But LVS is going to be mass market in Macau, whereas Melco's first casino is going to be called The Crown and it's really going to appeal to the high rollers."
Ahrens is also feeding quarters into the shares of slot machine manufacturers. "I love the manufacturers," he says. "Every time new casinos are built, it's new business for them."
That's also true, he notes, every time slot machines are allowed in new jurisdictions, as has happened recently in Florida, Pennsylvania and Mexico. They also benefit, he adds, from new product cycles as new types of games and new types of machines are rolled out.
He's betting on International Gaming Technology (IGT) , the dominant player with more than 50% of the market, along with its smaller rivals Bally Technologies (BYI) and WMS Industries (WMS) .
So far Gaming & Casinos has lagged the S&P 500 by a few percentage points, though a year isn't really a meaningful period to measure in terms of performance. During the three years Ahrens ran the Vice Fund, from 2002 to 2005, he beat the S&P by about 15 percentage points.
Every poker veteran knows that some of your biggest decisions are which hands to pass. In Ahrens' case, his best move came from avoiding the online gambling companies, mostly listed in London, when they were booming a year ago.
They collapsed last summer when Uncle Sam cracked down on their illegal business with tougher enforcement and a new law.
"I was really uncomfortable with the online gambling companies because even before they passed the new law they were operating illegally," he says. Even at current depressed stock prices, he believes they're a bad bet because he predicts a lot of the companies will go bust. If the U.S. ever opens up the market to online poker and gambling again, he adds, the big Las Vegas companies will probably dominate it anyway.
Ahrens' only exposure to the industry is a few online gambling technology companies.
The gambling industry -- which calls itself the "gaming" industry -- has always proven a great investment. As veteran gamblers like to say, you'll never meet a poor bookie.
But whether this is the time to push all your chips into the center of the table is another matter. The stocks seem as expensive as everything else these days -- Las Vegas Sands, for example, has doubled in a year to trade at 54 times likely earnings. It may be a great company, but those aren't great odds.
Yet on the bull side, the private-equity crowd is looking greedily at big casinos, with their fat cash flows and valuable real estate. They're already snapping up Station Casinos (STN) and Harrah's (HET) , Ahrens' biggest single holding, and they may go for more.
It's always an interesting time for the gambling industry. This is a fund to watch.
