If you have a 401(k), you’ve probably invested in guns. And if that runs counter to your ethics, there’s probably not much you can do about it, at least not yet.
Most large investment funds – which manage millions of individual retirement accounts – own stock in American gun-makers as part of their indexed funds, so avoiding that sector isn’t easy. But money managers say a growing interest by younger investors in ethical investing, combined with a recent move by Blackrock, the world’s largest money manager, could lead to less investment in gun-makers.
Blackrock said last week that it wants to talk to major weapons manufacturers about their response to the shootings at a high school in Parkland, Florida, in which 17 people were killed. It’s unusual for a money manager to take such a proactive approach.
Blackrock is the largest investor in America’s biggest gun-maker, Sturm Ruger, controlling more than 16 percent of its shares. The second-largest investor in Sturm Ruger is the investment company Vanguard Group, which owns over 9 percent. Blackrock and Vanguard are also among the biggest shareholders of Vista Outdoor, the parent company of firearms manufacturer Savage Arms, and American Outdoor Brands, formerly Smith and Wesson Holding.
Vanguard won’t cherry-pick stocks for its index funds, which are designed to replicate the performance of a broad index, like the Standard and Poor’s 500-stock index, spokeswoman Carolyn Wegemann said. Only about 5 percent of Vanguard’s funds offered worldwide are invested in gun-makers, she said.
Since the Florida attack, Chicago-area investment advisers say they have not fielded questions from clients clamoring to get out of gun stocks. That’s because many people who invest only in retirement plans or other long-term funds are unaware of the particulars of where their money is invested.
“I don’t think it would occur to most mutual fund investors that they even have gun stocks,” said Jon Hale, Morningstar’s director of sustainability research.
But Hale thinks that with the student-led uproar after the Florida shootings and the increasing pace of such attacks, the conversation around guns – and investment in gun-makers – may change.
“There appears to be something different about this,” he said. “Maybe we’ve reached a tipping point,” he said.
When investors choose to let their values influence investment decisions, they often seek to exclude weapons manufacturers from their portfolios, said Andrew Denenberg, a wealth and retirement plan adviser with Strategic Wealth Partners.
How easy that is to do depends on the size of their portfolios.
“If you’re buying individual stocks, you can do that, but that’s not most of the world,” said Stephen Reiches, principal with Rappaport Reiches Capital Management.
Investors in mutual or index funds can generally figure out whether their fund invests in a firearms manufacturer by reading the fund’s prospectus. But that still gives only a snapshot of the fund’s holdings at a moment, and even if investors do find out that the funds hold shares of a company they don’t support, they have no control over what the mutual fund buys and sells, Denenberg said.
Even when a socially responsible option is available, the mutual fund’s definition of socially responsibility might not be a perfect match for investors.
One socially responsible mutual fund Rappaport Reiches recommends avoids investing in companies that profit from gambling, nuclear weapons, pornography, land mines, tobacco and stem-cell research. But the fund doesn’t specifically exclude firearms, or retailers that sell firearms.
“Every person has ideas about what’s responsible, and if you had 20 people in the room, you’d get 20 different answers,” Reiches said.
Wealthier individuals have more options and can hire a portfolio manager to buy and sell stocks in an account in which they can blacklist specific companies. But most such accounts require an investment of at least $100,000, Denenberg said.
One firm that does avoid weapons manufacturers is Domini Impact Investments. Domini’s funds also avoid investing in retailers that garner a significant portion of their business from weapons sales, said Carole Laible, the firm’s CEO.
Paul Nolte, a senior vice president and portfolio manager at Kingsview Asset Management, said millennials are demanding a far stronger ethical lens on investments than baby boomers did.
And that trend may be in part a result of young people who believe in gun control but feel helpless in the battle to enact new laws to restrict gun sales. Nolte said the increasing pace of mass shootings has led more investors to seek those options.
“Now people are asking questions that they never asked before,” he said.
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