Daniel Ahrens and investors in his Vice Fund, the top performer the past 12 months among growth stock mutual funds with less than $500 million of assets, have been rewarded for pursuing a socially irresponsible strategy.

Mr. Ahrens targets shares of companies that run casinos, sell beer and cigarettes, and make weapons. His philosophy contrasts with the approach taken by so-called socially responsible funds, which shun the stocks.

“No matter what the market is doing, people are going to continue to drink, continue to smoke, and continue to gamble,” said Mr. Ahrens, 39, in an interview from his Dallas office.

His fund rose 20% in the past 12 months, the biggest advance of 84 funds tracked by Bloomberg that have less than $500 million of assets and concentrate investments in companies that generate above-average earnings growth. The performance surpassed the Sierra Club Stock Fund, a leader in the socially responsible category, which gained 6.7%.

The Vice Fund’s holdings include Harrah’s Entertainment, the no. 2 American casino operator; Anheuser-Busch, the world’s largest brewer, and Altria Group, parent of the maker of Marlboro cigarettes.

Mr. Ahrens’s investment approach is risky because he has fewer investment options than most of his competitors, said an analyst at fund industry research firm Morningstar, Christopher Traulsen.

“I’m not sure why you’d want to limit yourself to vice stocks,” he said. “People need cigarettes and booze and gambling, but they also need health care. I would rather have a manager that would invest in them when it’s opportune.”

Mr. Ahrens started the Vice Fund in September 2002. According to the fund’s prospectus, it usually devotes at least 80% of assets to companies that derive “a significant portion of their revenue from products often considered socially irresponsible.

The Vice Fund’s investment philosophy contrasts with money managers such as Amy Domini, whose Boston based firm has attracted about $2 billion by avoiding shares of companies involved in alcohol, tobacco, gambling or weapons. The Vice Fund, by contrast, has $29 million of assets.

The Domini Social Equity Fund, the biggest in its category, rose 3.9% in the past 12 months.

“We start from polar opposite places,” Ms. Domini said in an interview. Cigarette and alcohol makers earn money by “shoving costs from their balance sheet onto everyone else. We pay more in health-care costs and hospital bills to subsidize tobacco companies,” she said.

Mr. Ahrens, a graduate of Texas Tech University in Lubbock, Texas, disagrees with his detractors. Buyers of socially responsible funds often “have no idea what they’re investing in,” he said. The funds have different guidelines that are sometimes contradictory and “rather outrageous,” Mr. Ahrens said.

In his book, “Investing in Vice,” Mr. Ahrens questions why Ms. Domini avoids tobacco and alcohol stocks, and invests in Microsoft and Intel – companies “assailed as vicious monopolies.” Microsoft and Intel were two of Ms. Domini’s 10 biggest holdings as recently as September.

“Many investors brought in under the socially responsible ideal would be disappointed if they truly understood how their money was managed,” he wrote.

Ms. Domini countered that gambling, tobacco and alcohol companies go after a “more vulnerable audience.”

“For me, it’s the morality issue,” she said. “The issue is the addiction.”

The Vice Fund was opened after Mr. Ahrens did an analysis of the stock markets over three- and five-year periods. “I simply noticed that alcohol, tobacco, and gaming were popping up near the top,” he said. “That led to some serious research and back testing, and then we made a conscious decision to focus on four industries,” the other being defense and aerospace.

Mr. Ahrens’s biggest winners have been in the casino industry.

Shares of Harrah’s, which is buying Caesars Entertainment to become the largest American casino company, more than doubled in the past two years. He also owns shares of Las Vegas based Shuffle Master, which makes card-shuffling equipment.

Gambling stocks are recession-proof, he said. The Bloomberg Las Vegas Index, which consists of companies based in Las Vegas, outperformed the Standard & Poor’s 500 Index in each of the past six years. It notched gains every year since 1999, avoiding the 2000 to 2002 bear market. Casino-related companies account for 84% of the Bloomberg index’s value.

“Gaming was doing fine while the rest of the market was in a serious downturn,” Mr. Ahrens said. “It’s such a fast-growth industry and there seems to still be more potential just because of demand.”

Mr. Ahrens is adding to his holdings of St. Louis-based Anheuser-Busch, whose earnings increased every year since 1995. He said the stock is cheap after dropping 11% during the past year.

“I balance the portfolio by putting new money into areas that may be undervalued versus the rest of the portfolio,” he said.