Hedge Funds Still Buying Gun Companies Amid Control Debate

A number of hedge funds and money managers saw opportunity in gun companies during the fourth quarter of 2012 amid debate on gun control and during the period when the tragic shooting happened at Sandy Hook Elementary School at Newtown Connecticut. During the period, hedge funds and financial firms invested approximately $79 million in the shares of gun manufacturers.

Hedge Funds Still Buying Gun Companies Amid Control Debate

The report published by New York City public advocate, Bill de Blasio indicated that eight hedge funds initiated a new position in Sturm, Ruger & Company (NYSE:RGR) and/or Smith & Wesson Holding Corporation (NASDAQ:SWHC).

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During the fourth quarter of 2012, Impala Asset Management purchased 346,252 shares of Smith & Wesson Holding Corporation (NASDAQ:SWHC) and 547,686 shares of Sturm, Ruger & Company (NYSE:RGR). Its total investments in both gun manufacturers were approximately $27.8 million.

Owl Creek Asset Management acquired 1,616, 300 shares of Smith & Wesson Holding Corporation (NASDAQ:SWHC) worth $13.6 million and Arrow Street Capital 56,110 shares of SWHC and boosted its holdings in Sturm, Ruger & Company (NYSE:RGR) by 16, 963 shares.Ellington Management Group also bought 56,600 shares of Smith & Wesson Holding Corporation (NASDAQ:SWHC) and 8,300 shares of RGR.

The other hedge funds that initiated positions in gun manufacturers include Valinor Management (270, 179 shares of RGR), Highside Capital Management (251, 807 shares of RGR), Gotham Asset Management (41, 250 shares of RGR) and boosted SWHC by 283, 299 shares. Coghill Capital Management (86,000 shares of RGR), Tudor Investment Corporation (8,300 shares of RGR) and boosted its stake in SWHC by 67,400 shares as well as in Olin Corporation (NYSE:OLN) by 34,000 shares.

Some of the largest money managers in the country that increased its gun-related stockholdings include BlackRock, Inc. (NYSE:BLK), Vanguard Group, and State Street Corporation (NYSE:STT).

In contrast, Renaissance Technologies decreased its stockholdings in RGR and SWHC. David Dreman’s hedge fund also reduced its position in Olin Corporation (NYSE:OLN).

Last month, the New York Teachers Pension Fund sold its stake in gun and ammunition manufacturers. In December, the the California State Teachers’ Retirement System (CalSTRS) announced the review of its investments in Cerberus Capital Management, the private equity firm that owns Freedom Group, the largest ammunition and guns manufacturer in the United States. On the other hand, Cerberus Capital decided to sell Freedom Group after the shooting incident in Connecticut.

In a statement, de Blasio said, “For the rest of the country, Newtown changed everything. But, for these financial firms, Newtown was just another opportunity to profit — and our communities are paying the price. We won’t let business-as-usual prevail. We will force the issue through a national divestment campaign that changes the gun industry’s dangerous practices for good.”

On the other hand, Brian Beades, managing director at BlackRock, Inc. (NYSE:BLK) explained that the company invest on behalf of its clients. He said, “Semi-automatic gun manufacturers are included in major stock indices provided by Dow Jones, MSCI, Russell, FTSE and S&P — and therefore are held in our passive index funds. As a provider of passive index strategies, we seek to match a benchmark’s return, generally by holding each constituent in the benchmark.”

Meanwhile, Joseph O’Brien, chief operating officer of Highside Capital Management said, “Highside did not have any net long positions in any firearms manufacturers in the fourth quarter,”