While calls for policy change on gun control go unheeded in Congress, people who want to vote with their pocketbook have a few options.
One of the main market-based solutions is to invest in socially responsible funds. Socially responsible investments consider both financial return and social good when evaluating investments. Studies from Morningstar, Lipper and other researchers find that SRI returns before fees are similar to mutual funds and exchange-traded funds that don’t add the social-good layer.
“The best way to clean your portfolio is to go into SRI funds. It is a $7 trillion AUM (assets under management) pool of capital for the U.S.,” says Sylvia Maxfield, dean of the School of Business at Providence College, a Catholic Dominican college whose endowment fund uses SRI funds.
Historically, faith-based investors used socially responsible funds to screen out weapons in their investments. Meg Voorhes, research director at US SIF: The Forum for Sustainable and Responsible Investment, says there’s been a big increase in secular investors seeking out socially responsible funds for this purpose.
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While it’s well-documented that gun manufacturers such as Smith and Wesson Holding Corp. (ticker: SWHC) and Sturm, Ruger & Co. (RGR) are seeing record sales and their stock prices are high, US SIF data shows there’s an increasingly strong market view regarding divesting of gun stocks.
“People aren’t willing to accept the status quo anymore. Orlando just set something off. It’s so horrific to people — schools, aren’t safe, theaters aren’t safe, nightclubs aren’t safe,” she says.
According to the MassShootingTracker.org, there were 371 mass shootings in the U.S. in 2015, which they define as an incident where four or more people are shot in a single shooting spree, killing 469 people and wounding 1,387. This year, there are 337 killings and 841 woundings, the data shows.
Growing influence. US SIF issues a biennial report to measure the size of socially responsible investing in the U.S. In its 2014 report, which included the Sandy Hook school shooting in Newtown, Connecticut, Voorhes says more institutional and money managers incorporated investment criteria related to weapons production versus the 2012 report. Money managers saw a four-fold increase in assets, to $588 million. For institutional managers, the amount of money they manage that restricts or excludes weapons increased by five-fold, to $355 million.
“Part of the increase in the institution asset owner side we saw came from public funds. The city of Chicago, for instance, and CalPERS (California’s pension system) adopted screens on gun manufacturers,” she says.
They will release new research later this year on the state of the SRI sector and she says this trend of restricting investing in weapons may continue. As of 2014, overall money using SRI criteria was about $6.7 trillion, she says. However, she adds that simply combining the two management categories to tally how much money is steering clear of gun manufacturers isn’t exact since there’s some overlap between those two groups.
How to invest. Kate Huntington, managing director of research, Athena Capital Advisors, says investors can talk to their financial advisers about building portfolios suited to their beliefs. Her firm published research for financial advisors that uses SRI investing based on modern portfolio theory. Outside of publicly traded stocks, for people who are qualified to invest in private equity, she says there are some private companies looking to impact the sector, such as Clipfort, which is trying to create sensors for guns to prevent unauthorized use of weapons.
Maxfield says investors who want to use mutual funds can quickly find which ones restrict or eliminate gun manufacturers from their holdings as the SRI funds are transparent on their holdings.
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According US SIF data, there are several large mutual funds with over a billion in assets spanning different aspects of the U.S. stock market, each with their own view of how to screen gun industry investments.
A few examples include the Ariel Fund (ARGFX), a $1.9 billion mid- to small capitalization fund that does not invest in corporations whose primary source of revenue is derived from the manufacture of handguns. Its year-to-date return is down 2.29 percent.
The Calvert Equity Portfolio A (CSIEX) is a large-cap fund with $2.2 billion under management. It does not invest in firms that manufacture or sell firearms and/or ammunition, and it excludes firms that manufacture, design, or sell weapons or the critical components of weapons that violate international humanitarian law. Its year-to-date return is 0.1 percent.
Neuberger Berman Socially Responsible Investment (NBSRX) is a $2.2 billion large-cap fund does not invest in defense or weapons and has a year-to-date return of 1.33 percent.
TIAA-Cref’s Social Choice Equity Retail (TICRX) seeks to reflect the overall stock market with a focus on environmental, social and governance criteria, a form of SRI, which has $2.7 billion under management. Although the fund says that weapons are not automatically excluded, they don’t include most defense/weapons firms because they have poor overall ESG performance. Its year-to-date rate of return is 4.05 percent.
John Streur, chief executive officer at Bethesda, Maryland-based Calvert Investments, says they hear anecdotally from financial advisers that clients want to avoid gun manufacturers after fresh news about shootings.
Other tactics. There’s been some effort by SRI funds to persuade major retailer firms to either eliminate or restrict the guns they carry via proxy voting, but with little effect so far, says Daniel Kern, chief investments strategist at TFC Financial in Boston, and who has conducted much research about fossil fuel divestment.
“As long as they’re not violating any laws, they have the right to sell guns as long as they meet the state requirements,” Kern says.
Instead, some SRI funds try to talk with the retailers about their products, says Erica Lasdon, Calvert’s vice president of research and advocacy, which is one way they try to engage with corporations.
Streur says people can engage with corporations both from an investor and a consumer standpoint and not shop at stores that sell weapons as another market-based solution. But that’s not all, he stresses.
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“Just not shopping is one thing. Send an email to the CEO or the chairman of the board and tell them why you’re not shopping there. It gets through,” Streur says.
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How to Invest In Funds That Exclude Weapons originally appeared on usnews.com
