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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.

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