Nowadays, there is a debate about the possibility that sin stocks bring higher returns than other ones to the investors. This thesis is a case study on a mutual fund: The Vice Fund. This US fund has a specific investment strategy: it invests in sin stocks. We compared this mutual fund to The Timothy Fund because they have similar characteristics such as – date of inception, total assets, home country and investment universe, expect the investment strategy. Indeed, The Vice Fund invests in sin stocks and The Timothy Fund does not. Two benchmarks are also used in the study: the S&P 500 Index as a domestic benchmark and the MSCI World Index as an international benchmark. This thesis is a case study using a deductive approach on a quantitative ground. The study is done on ten years long from 2003 to 2012. We divided the entire period into three different sub-periods depending of the S&P 500 Index trend. The first and the last sub-periods are bullish and the second one is bearish. In order to analyse both the financial performances and the risks of The Vice Fund we use several tools. We calculated returns and risk-adjusted ratios: the Treynor’s ratio, the Sharpe’s ratio and the Jensen’s ratio. Because these ratios are less accurate in bearish markets, we calculated the normalized Sharpe ratio by doing linear regressions and we also calculated the modified Sharpe ratio. In order to perform these calculations, we used DataStream as a database to obtain prices and dividends for the two mutual funds and the prices for the two benchmarks. We got also the one-month T-bill to have a risk-free rate. We found that The Vice Fund had a better average returns performance whatever the market conditions over the period studied. However the difference between weekly results with The Timothy Plan Fund and the benchmarks is not statistically significant. The risk- adjusted ratios confirmed the superiority of the risk-adjusted financial performance of the sin fund.

Problemformulering: Går det att uppnå en signifikant återkommande överavkastning samt riskjusterad överavkastning i förhållande till den svenska aktiemarknaden genom systematiskt följande av investeringsstrategin “Dogs of the Dow”? Syfte: Syftet är att undersöka huruvida teorin ”Dogs of the Dow” är applicerbar på den svenska aktiemarknaden i sökandet efter en signifikant återkommande överavkastning i förhållande till marknaden. Med detta hoppas det finnas en positiv differens av den riskjusterade överavkastningen gentemot index. Metod: Studien samlar in primärdata för empirin via SIX Trust, SIX Edge samt från Riksbankens hemsida. Sekundärdata härstammar från vetenskapliga artiklar uthämtade från främst JStor och EBSCO Host. Även studentlitteratur, tidigare studier utgör sekundärdata. Studien tillämpar befintliga teorier för att via modeller studera studiens syfte. Resultat: Resultatet anses av författarna vara imponerande. Portföljerna sammansatta i enlighet med investeringsstrategin ”Dogs of the Dow” presterar till de skådade faktorerna i genomsnitt över lag bättre än jämförelseindexen SIXRX och SIX30RX. Resultaten kan dock inte fastställas statistiskt men författarna önskar skilja på statistisk och praktisk signifikans då en möjlig kumulativ effekt genererar enorm förmögenhetsutveckling. / Problem: Is it possible to receive a reoccurring significant abnormal return as well as risk adjusted abnormal return against the Swedish stock market through systematic appliance of the investment strategy ”Dogs of the Dow”? Objective: The objective is to study whether the theory ”Dogs of the Dow” is applicable on the Swedish stock market in the search of a significant reoccurring abnormal return against the market. The hopes are to find a positive difference between the risk adjusted abnormal return and index. Method: The study collects the primary empirical data through SIX Trust, SIX Edge as well as from the Swedish central bank. The secondary data is derived from scientific articles, student literature, and previous studies. Models are used to study the objective. Results: The authors find the results to be impressive. The portfolios structured through the investment strategy “Dogs of the Dow” outperform the comparison indices SIXRX and SIX30RX in general on all the observed accounts. The results can although not be stated as statistically significant within any reasonable confidence levels, but the authors would like to emphasize the difference between the terms statistically and practically significant. This since cumulative gains could contribute to a massive gain of wealth which could be practically significant for the long-term investor.