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Fund Spy

Funds Rolling the Dice on Casino Stocks

The gambling industry's freefall has hit some funds hard.

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Amid all the financial turmoil roiling the markets these days, one area that has been particularly hard-hit is gambling and casino stocks. In many ways, these are stereotypical consumer discretionary stocks--they tend to do quite well when the economy is humming along and people have lots of extra money to spend, but when times get tough, as they are now, resorts and casinos tend to be among the first things people cut back on. The credit crunch has made things even worse, especially for the numerous casino firms that are highly leveraged.

These factors have combined to pummel gambling-related stocks over the past year, and especially during the market meltdown of the past few months. The average stock in Morningstar's gambling/hotel casinos industry (which also includes cruise ships) has lost more than 50% this year, making it one of the worst-performing industries in a year of terrible losses across the board.  Las Vegas Sands (LVS) is down more than 90% for the year (as of November 13), largely because its ambitious expansion into Macau has left it strapped for cash and exposed to the slowing Chinese market. Another big casino operator,  MGM Mirage (MGM), is down more than 80% and facing liquidity problems that forced it to delay several major projects. Even a relatively healthy operator like  Penn National Gaming (PENN) is down 70% for the year due to economic fears.

We thought it would be interesting to see which mutual funds have the biggest exposure to these battered stocks, and how that exposure has affected fund performance. The following table shows the 10 mutual funds with the largest such exposure. We show each fund's category, the size of its asset base, the percentage of assets in the gambling/hotel casinos industry, the fund's total return for the year to date through November 12, and its percentile ranking within its category.

 Funds with the Biggest Casino Stakes


% Rank
Ladenburg Thalman Gaming (GACFX)Mid-Cap Growth1.164.18-71.26100
FBR Focus (FBRVX)Mid-Cap Growth734.521.32-40.798
Rydex Leisure (RYLIX)Mid-Cap Growth1.020.83-56.1896
Fidelity Select Leisure (FDLSX)Large Growth137.418.22-41.5831
Vice Fund (VICEX)Large Blend96.615.46-45.7384
Baron Partners (BPTRX)Mid-Cap Growth2,683.28.27-49.4761
SPARX Asia Pacific Eq Income (SPAIX)Pac/Asia ex-Japan4.27.27-42.912
Turner New Enterprise (TBTBX)Mid-Cap Growth24.27.21-56.7998
Aquila Rocky Mountain Equity (ROCAX)Mid-Cap Growth12.16.78-49.0058
Tanaka Growth (TGFRX)Mid-Cap Growth5.36.78-48.6053
* As of 11-12-2008.

Topping this list is a fund that specializes in gambling stocks: Ladenburg Thalman Gaming and Casino (GACFX), which has nearly two thirds of its portfolio in this sector, with most of the rest in stocks related to video games. This fund has been absolutely pummeled this year, with a staggering 71% loss that ranks at the bottom of the mid-cap growth category. Its top holding is beleaguered MGM Mirage, and seven of its top eight holdings are down more than 50% this year.

The rest of the funds on the list have smaller but still significant stakes in the gambling/hotel casinos industry. While all of these funds are down more than 40% this year, they vary quite a bit in how much those stakes have hurt them relative to their category peers.

Rydex Leisure (RYLIX) and the Vice Fund (VICEX) both have significant gambling exposure as part of their broader strategies (summarized in the funds' names), and both are down more than 40% this year, ranking near the bottom of their categories. The other two funds in the top five,  FBR Focus (FBRVX) and Fidelity Select Leisure (FDLSX), have similar gambling and casino exposure, but they've held up quite a bit better, with FBR Focus actually ranking in the mid-cap growth category's top decile. That fund's big positions in Penn National Gaming and  Bally Technologies (BYI), which together make up 18% of the fund, have been partially offset by top-five holding  99 Cents Only Stores (NDN), which has gained more than 50% this year as pressured consumers look for bargains, and by other top holdings that have suffered only modest losses.

It's clear that all of these funds have been hurt to some degree by their bets on gambling and casino stocks, and the Ladenburg Thalman fund's enormous stake, in particular, has kept it near the bottom of its peer group. Some of the other funds have been able to mitigate the damage with good stock-picking elsewhere; three of them beat their categories for the year to date and three others are only slightly behind, though that may not be much comfort to investors given the terrible losses all these funds have suffered.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.