The way tobacco stocks have rallied this spring, it'd be a nice time to own a few shares of a tobacco sector mutual fund.

The stocks of Philip Morris Cos. and R.J. Reynolds Tobacco Holdings Inc. both rose around 50 percent from their early 2000 lows.

Ah, but you know there isn't any tobacco fund among the dozens of specialized single-industry funds offered to U.S. investors. Barring the most dramatic turn of the tide since Exodus 14:21, there never will be.

As Jim Grant put it so succinctly in his Grant's Interest Rate Observer early this year, "There is no future in smoking, neither for the smoker nor for the tobacco companies."

Plenty of fund managers who invested in this once-reliable growth industry know whereof he speaks. A 55 percent drop in Philip Morris shares in 1999 played havoc with the returns of "value" funds like the Oakmark Fund, which wound up changing managers in early 2000, and the Kemper Dreman High Return Fund.

Oakmark declined 10 percent during the year and Dreman High Return lost 13 percent, while the S & P; 500 gained 21 percent. "Socially responsible" funds across the land received a big boost toward beating the S & P; 500 simply by owning no Philip Morris or any other tobacco stock. (Even in its present reduced circumstances, Mighty MO is still the 43rd largest component of the S & P; 500.)

Quite a few fund managers have been busy lately extricating themselves from their MO holdings. In the latest Bloomberg Analytics tally, institutional sellers of the stock outnumbered buyers by about a 7-to-5 ratio.

Fidelity Investments, the giant of the fund industry, has in recent months reduced its aggregate Philip Morris holdings from about 7 percent of the outstanding shares to less than 5 percent, according to its public filings.

Philip Morris, which constitutes more than half of the Bloomberg U.S. tobacco index, was long revered as a standout growth company, bringing in strong earnings not just from Marlboro cigarettes and other tobacco products, but from dozens of non-tobacco stalwarts such as Kraft cheese and Maxwell House coffee.

Through the 1980s and most of the '90s, its stock averaged a potent 25 percent annual return. In the last five years, the company has maintained dividend growth at a 12 percent rate, while buying back shares as well.

But lately it has morphed from a growth stock into the type favored mainly by contrary-minded bargain-hunters.

The transformation became official a few months ago when the stock's dividend yield performed the rare feat of surpassing its price-earnings ratio. Even after the stock's recent rally, the P/E, at about 7.8 times this year's estimated earnings, barely exceeds the yield, at 6.7 percent. "A very cheap stock," said Grant, "if one is prepared to overlook the risk of oblivion-through-litigation, which one cannot."

With all its baggage, some conservative-minded funds haven't given up on MO yet. It still shows up among the latest monthly Top 10 holdings at three Capital Research Management Co. funds: Investment Co. of America, Income Fund of America and American Balanced Fund. Managers of these funds apparently look at the stock as they would an attractively priced junk bond, whose high yield and intriguing possibilities they see as outweighing the constant risk of an unhappy surprise.

Note well, though, that all three unlike many contrarian "value" funds are highly diversified, owning between 180 and 350 securities apiece. That diversification cushions them against whatever misadventure the stock might encounter next.

Chet Currier is a columnist for Bloomberg News.

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