Ethanol... taking Stock, and maybe shorting it.

Blogging about beverages from a consumer's standpoint is a lot of fun, but there's another side to all the lids on all these bottles, kegs, and mason jars we tap.

It's instructive to look at the Ethanol from Wall Street point of view, as in where asset managers put "their" dollars to work in the beverage business. And by "their", I mean your pension, annuity, and savings. Just as our government is representational, in most cases (day traders and "home gamers" aside) so too is the allocation of institutional resources to enterprise. That includes beverage businesses. 


One storied proxy for Wall Street's investments in ethanol is The Vice Fund, which began in 2002.  Ethanol is one of four legs of the stool they constructed to tap reliable returns from four basic business sectors that are considered counter recessionary (and depressionary if it comes to that), because like sin and crime, these pass times will always be with human kind, come hell or high water.  And The Vice Fund has delivered superior returns since inception, despite the epic slide of 2008. 

They invest in Alcohol, Gaming, Weapons, and Tobacco.  Their rational of their screen is as follows:
 

» Potential demand regardless of economic conditions

» Global marketplace not limited to the U.S.

» Potentially high profit margins

» Natural barriers to new competition

» Ability to generate excess cash flow

» Ability to pay and increase dividends

And the companies they liked best in 2012 for their predictable cash flow and dividends they share with share holders were, predictably:

Anheuser-Busch InBev NV - (ADR)
Beam, Inc
Diageo, PLC (ADR)
Molsons Coors Brewing 

As investment risks go, political headline risk is to which one should remain on watch.  It is not unforeseeable that companies who (yes, they are people now) really get hot and heavy into politics for competitive advantages are likely to be taken to task by consumer of one or another stripe at some point for their self dealing at the expense of the common wheel. And so if one takes stock in ethanol companies, it may both pay, and also save a good loss to stay tuned to that sort of thing (boycotts, resentments, burning CEO or Lawyer-lobbyist effigies, etc).  Here is a link for other interesting information about Diageo, which like Altria-SAB-Miller-Coors, has links to A.L.E.C. (see, http://www.alecexposed.org/wiki/ALEC_Exposed) , the powerful lobbying organization that is changing the political landscape of America on a local level, quietly and without much debate, one state at a time:  http://www.sourcewatch.org/index.php?title=Diageo

Diageo net's about $2.4 billion per year, but laying down with despised dogs to protect its competitive advantages could amount to the kind of fleas that can put your portfolio to sleep.

Nonetheless, The Vice Fund is a good example of an investment company that screens investments on any number of metrics and related issues to find the best of the bunch in these "vice" industries, of which ethanol a probs. charter member. As active trading company, they sort of represent that they will pull out of an investment that threatens to put your money to sleep in the aforementioned, forseeible manner.  You'll find info about The Vice Fund here:

http://www.usamutuals.com/vicefund/phil.aspx
Information Sheet:
http://www.usamutuals.com/vicefund/docs/VICEXcomplete.pdf