Have you ever wondered why some scams never seem to go away?  It’s because they work.  I was reminded of this recently when a young woman was accused of bilking an elderly man out of $47,000 with a phony story about a kidney transplant.  Gee, was the “need” for a Mercedes not obvious enough that something wasn’t quite right?

The world of finance is not immune.  Did anyone strike it rich in a South American copper mine?  What’s the going price for a share of Enron?  Coo coo ca-choo Mr. Madoff!

Yes, these were scams in the literal sense.  Now the SEC is being asked to approve a new security in which investors are sure to lose.  If approved we’re seeking to trademark the term “legitimate scam.”

iShares, the world’s largest sponsor of ETFs, filed paperwork for The iShares Human Rights Index Fund.  Companies ineligible for investment are those that operate in countries promoting or suspected of human rights violations, torture, slavery, rape, death, etc.

Sounds like a good idea, right?  Wrong!

It seems investors will never learn the fundamental truth.  The sole purpose of investment is to make money.  What investors choose to do with that money is irrelevant.

We’re certainly not against the idea of doing good work, being socially conscious, etc.  If that’s what some folks choose to do with their money we fully support it.  It’s simply that the best way to do it is not by sacrificing returns (and that’s precisely what socially-conscious investing is) but by maximizing returns and using “excess profits” for social causes.

How beautiful the irony if profits from an investment in Anheuser-Busch InBev are used to start a chapter of Mother’s Against Drunk Driving (“MADD”)?  Why not use money earned on an investment in ExxonMobil to buy an electric car?

If this sounds like a bunch of nonsense and grandstanding look no further than The Vice Fund.  Sponsored by USA Mutuals the fund invests in so-called “sin stocks” – companies that produce and distribute alcohol, tobacco and firearms.  While these industries are reprehensible to some they produce wonderful investment results.

Consider the following comparison of The Vice Fund’s returns and those of a couple of socially-conscious funds to the S&P 500:

+/-
S&P 500
2003
2004

 2005
2006
2007
2008
2009

 2010
2011
Vice  +5.64  +13.49  +1.50  +7.36  +12.27  -4.57  -13.75  +2.98 +8.71
VALIC Company II Socially Responsible  -0.43  -0.94  -0.82  -0.19  -1.51  -0.54  +4.24  -0.43  -0.81
CNI Charter Socially Responsible Equity        -0.64  -5.73  +2.23  -3.80  -1.33  -3.91

If you want to do good things with your money then we say go for it.  If you want to maximize your impact we say forgo the iShares Human Rights Index Fund.  In fact the ETF should be put out of its misery (humanely of course!) before it gets off the ground.