April 19, 2018 / 9:38 PM / 7 months ago

Firearms companies widely held in ETFs and funds: research firm

BOSTON (Reuters) - An estimated 24 percent of the world’s exchange-traded funds and 15 percent of mutual funds have holdings in firearms companies, researcher Sustainalytics said in a report on Thursday, levels it said might be “more pervasive than some investors realize.”

FILE PHOTO: The BlackRock logo is seen outside of its offices in New York City, NY, U.S., October 17, 2016. REUTERS/Brendan McDermid/File Photo

The report shows the potential influence of fund firms like BlackRock Inc and Vanguard Group Inc with firearms companies. Both fund companies face consumer pressure over those investments and one activist’s talk of boycotting the firms.

Both asset managers in turn questioned firearms makers after a shooting at a Florida high school left 17 people dead in February, the second-deadliest shooting at a public school in U.S. history.

Sustainalytics found that holdings of the Vanguard Total World Stock ETF included investments in 21 companies in a range of firearms-related businesses including retailers. Together they represent less than one percent of the ETF’s total assets, however.

Filings show fund holdings include two large gunmakers, Sturm Ruger & Co and Smith & Wesson parent American Outdoor Brands Corp.

The report also showed both firearms makers and others underperformed the index on which the fund is based.

“In some cases, holding stakes in these companies can take a toll on the total returns of an investment portfolio,” report co-author Martin Vezer said via e-mail.

Just how fund companies should treat investments in gunmakers has become an issue among activists. David Hogg, a teenage survivor of the Florida school massacre, on April 17 tweeted a call to boycott BlackRock and Vanguard over their gunmaker holdings.

But other gun control activists have not called for boycotts or divestment, saying that investors instead can seek changes from the weapons industry like requiring completed background checks or reducing straw purchases.

“We generally don’t recommend divestment, because once you do, you lose the right to make shareholder resolutions and otherwise demand answers from a company’s board of directors,” said Avery Gardiner, co-president of the Brady Center to Prevent Gun Violence in Washington, D.C.

Vanguard spokeswoman Carolyn Wegemann said most of its funds do not directly invest in top gunmakers, and that it has been meeting with those firms and distributors to discuss their risk-mitigation plans.

BlackRock has said it is also questioning gun companies over their safety practices, and earlier this month said it would offer new investment strategies and ETFs that exclude gunmakers and retailers.

Reporting by Ross Kerber; Editing by Cynthia Osterman

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