Last month’s shooting at Florida’s Parkland High School precipitated a national debate on the ownership/support of firearms and how to reduce the risk and severity of future such events.
The shooting also set off a search for answers in the investor community.
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Craig Pearson, CEO and co-founder of Private Wealth Systems, says some investors are attempting to purge their portfolios of holdings in companies that manufacture or sell guns or ammunition.
“Investment advisors and wealth managers across the country have been scrambling to comply with these requests." - Pearson
Per Pearson, meeting these investors' wishes is not an easy feat for several reasons:
- The names of most of these companies are often not well known and do not particularly stand out in a prospectus.
- Smith & Wesson is now traded as American Outdoor Brands Corp., and the venerable Winchester brand is now owned by Olin Corp. National Presto Industries, famous for its line of small kitchen appliances, is actually a defense contractor that makes more money from the sale of ammunition and other lethal material than it does from consumer goods. (1)
- Popular consumer brands such as Dick's Sporting Goods and Walmart sell guns to consumers.
The difficulty is compounded by the fact that many of these securities are held by exchange-traded index funds (ETF), which hold shares of every company in whatever index they are tracking.
- 2 of the world's largest asset managers, BlackRock and Vanguard, are now among the top shareholders of 3 publicly traded gun companies: Sturm Ruger, American Outdoor Brands, and Vista Outdoor.
But Pearson says investors who wish to have their portfolios reflect their views do have options. The investment strategy known as "sustainable investing" considers factors such as a company's record on consumer protection, board diversity and managerial practices.
Per Pearson, this is not a minor activity. Over the next 3 decades, Bank of America Merrill Lynch predicts that millennials could drive some $15 trillion into Environmental, Social and Governance (ESG) funds in the U.S. (2) Per Pearson, there is growing evidence that suggests ESG factors may offer investors potential long-term performance advantages.
"Particularly in cases where a family has significant wealth, the preferences of investors can have a real impact—if their financial advisors and wealth managers are aware of each investor's personal preferences."
- Zigler, Brad, "Don't Own A Gun? Maybe Your Fund Does," WealthManagement.com, February 20, 2018.
- Kassell, Matthew, "Think you know about socially responsible investing?", Wall Street Journal, July 19, 2017.