Let’s face it, investing isn’t always perfect. Sometimes companies which we invest in do things that make us cringe, like causing harm to the environment or selling a product with safety issues. Some companies are better about these environmental, ethical or safety issues, so many investors make their decisions on which ones they think are acceptable investments.

But for other investors, it’s not a question of good or bad, right or wrong. For them, investing is about making money, so value judgments shouldn’t affect their investment decisions.

If you agree, then there’s an investment you should really consider. Yes, it’s controversial — so much so you might not even want to tell anyone if you were a shareholder. This is because management actually embraces controversy, buying stock primarily in cigarette producers, alcoholic beverage makers and other companies many investors shun for capitalizing on human vices.

I’m talking about a $95-million mutual fund appropriately named Vice Investor (Nasdaq: VICEX).

The fund loads up on “vice” stocks because, from an investment standpoint, they’re solid all-weather holdings, reflecting peoples’ reluctance to give up vices even in hard times. Whatever your stance on this strategy, the results are enviable. As the table below shows, Vice Investor has beaten its typical peer in the large-blend category for the past five years and is comfortably ahead for the trailing one- and three-year periods. (The fund debuted Aug. 30, 2002, so it doesn’t have a 10-year record yet.)

You can also look at this way: A $10,000 investment on Vice Investor at the fund’s inception in 2002 would be worth about $22,700 now, compared with $16,800 for the typical large-blend funds, which own a mixture of larger-sized growth and value companies. Vice Investor has also trounced the S&P 500, which would have turned $10,000 into about $18,400 during the same period.

Considering Vice Investor’s slant, it’s no surprise the fund’s top five holdings, by percentage of fund assets, include tobacco giants Altria Group Inc. (NYSE: MO) with 7%, Lorillard Inc. (NYSE: LO) with 7% and Reynolds American Inc. (NYSE: RAI; 4%) with 4%; casino operator Wynn Resorts Ltd. (Nasdaq: WYNN) at 5% and global alcoholic beverages supplier Diageo PLC (NYSE: DEO), with 4%. [See my Aug. 6 article, A Rock-Solid Stock for a Slow Recovery, for my take on Diageo.]

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Although drinking, smoking and gambling are Vice Investor’s main focus, the fund also has a significant presence on aerospace/defense — an industry some investors avoid because of a close connection with the military. For instance, 3% of the portfolio is invested in General Dynamics (NYSE: GD), which gets nearly three-fourths of revenue from government contracts for defense-related information technology systems, armored vehicles and other military equipment. Vice Investor has been known to delve into the firearms and high-end luxury car industries too, holding small positions in firms like gun manufacturer Sturm, Ruger & Co. (NYSE: RGR) and high-end luxury car maker Rolls Royce Holdings Ltd. (LSE: RR).

Historically, the fund has been domestically focused and currently keeps 65% of assets in U.S. stocks. In terms of foreign holdings, 26% of the portfolio is in Western Europe, 7% is in China and other more developed regions of Asia and 2% is in Latin America. By asset class, Vice Investor is 80% in large-cap stocks, 18% in mid-cap stocks and 2% in small-cap stocks. It’s virtually the same as the overall market with regard to price volatility.

Risks to Consider: Vice Investor is not well-diversified. Focusing assets in a small number of related industries — and spreading them over so few holdings, 39 stocks in all — may raise the risk of severe losses in the event of adverse developments, such as progressively larger “sin” taxes. Such taxes could eventually become large enough to motivate consumers to reduce spending on vices drastically.

Action to Take –> If you’re OK with vice stocks, then consider buying shares of Vice Investor. The fund’s performance speaks for itself. I see no reason why it shouldn’t keep delivering strong results for a long time, especially since consumers generally seem undeterred by high — and rising — sin taxes.

But I suggest approaching the fund like any specialty or sector fund, because it’s not well-diversified and therefore isn’t appropriate as a core holding. Consider limiting exposure to something like 3-8% of your total portfolio, at most.

I’d be doing a disservice if I didn’t point out Vice Investor’s expense ratio, which is currently on the high side at 1.7%. If you find this too pricey and prefer individual stocks anyway, then you could always use the fund’s list of holdings as a starting point for making your own picks.