Whenever you walk into a courthouse or police station, there are generally signs that are quite clear about checking your weapons before entering. There is no such signage preventing weapon companies from getting into the ETFs that make up your retirement account.
This piece was inspired by an article from Wealth Management, that discussed some clever ways in which gun companies can appear in plenty of retirement funds. In the wake of the Parkland school shooting, some investors, especially teachers worry that they may be unknowingly investing in gun manufacturers through their pensions without receiving proper disclosure so that they can make an informed choice.
However, even if individuals were able to devote the time and energy needed to locate any guns and ammo companies in their portfolio they may completely pass over them and not even know it. The names don't exactly jump out in a fund's prospectus, and some have names they would never suggest they sold weapons.
Oh sure, there are easy names to find like Sturm Ruger & Co (RGR), which is well known for its lines of pistols, revolvers and rifles. But then you have the most famous name, Smith & Wesson, which is now dressed up in a new name: American Outdoor Brands Corp. (AOBC) which doesn't exactly strike one as a manufacturer of firearms. At first glance you would think they made canoes and patio furniture. Similar to that, Vista Outdoor (VSTO) sells camping gear, but they also sells firearms and ammunition. Even the chemical company, Olin Corp. (OLN) owns the Winchester brand of guns and ammo, yet one would never know it based on the company's classification. National Presto Industries (NPK), which sounds like a magic company, is a manufacturer of small kitchen appliances, but is also a defense company that makes higher margins on the sales of ammunition than toasters.
Feel a bit silly yet? It should.
There are ninety-nine ETFs markets in the United States that hold at least one of the aforementioned stocks. There is at least one fund that owns all of the names above, while others just own one...but the position can be quite a large percentage of the overall ETF.
The following are some examples provided by Wealth Management:
PowerShares DWA Basic Materials Momentum Portfolio (PYZ): tracks a Dorsey Wright index that selects and weights stocks in the basic materials sector on the basis of their price momentum. Currently, PYZ devotes 3.33% of its portfolio to OLN.
Guggenheim S&P Global Water ETF (CGW), a cap-weighted portfolio of water utilities, equipment and materials companies that gives over 2.42% of its real estate to OLN.
VanEck Vectors Spin-Off ETF (SPUN) tracks an index of companies that have been spun off from their parent companies. VSTO, by virtue of its 2015 breakaway from Alliant Techsystem, Inc. (ATK) takes up 1.46% of the SPUN portfolio.
There is no warning for investors on a funds specific gun and ammo holdings, this is where ESG scores can come in handy: the MSCI ESG Fund Quality Score takes the measure of an ETF’s underlying stocks to manage ESG risks on a scale of 0 (least capability to manage risk over the medium and long term) through 10 (greatest ability to manage risk). Regardless of where your views are on the 2nd Amendment, especially of assault-style weaponry, you can’t deny the social risk it carries, especially into the future.
If should come as no surprise that the aforementioned ETFs rank quite low on the ESG scale: on a scale of 0-10, PYZ = 3.51, CGW = 5.23, and SPUN = 4.17. Low scores, regardless on your view on guns, ought to at the very least make you take a closer look at your portfolio in order to understand why. If legislators won't vote to pass gun legislation, investors can, at the very least, vote with their wallets if they so choose.
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