Investors have guns in their sights

Confronting guns in portfolios requires advisers to be informed about the politics

There are no simple conversations about guns in American society. Not in the halls of Congress. Not on the floors of state legislatures. Not at community or school board meetings. And not between an investor wishing to avoid the impact of guns and their investment adviser.

This has been true for decades of course, but not since the late 1960s have guns so dominated public debate.

“It may take another act of horror to push really effective gun curbs through Congress,” Time magazine wrote in response to the Gun Control Act of 1968.

Well, the horrors keep coming. But effective gun control laws haven’t followed.

In June – following a month marred by 63 mass shootings, including a racially motivated mass shooting in Buffalo, New York, and the elementary school in Uvalde, Texas – Congress could barely agree on the most rudimentary “red flag” laws.

Most advisers know responsible investors have a large appetite to divest from guns. But many don’t yet realize that this now includes the political complex that protects the weapons and accessories used in mass shootings. The collateral damage of guns on society has become that pronounced. This requires a much more informed conversation.

Avoiding guns in portfolios

By 2018, over $1.5tn in institutional investment strategies already were excluding guns by policy. This affects just a handful of publicly-traded gun and ammunition manufacturers, all in the small-cap space. But nearly 35% of all US stock funds include at least one gun manufacturer or ammunition maker. Advisers or investors can access tools from Morningstar or advocacy groups like As You Sow to identify holdings in these gun companies. Typically, the exposure is very small, and avoiding these companies does not change the risk and return characteristics of a portfolio in a material way.

Corporate engagement

The Securities and Exchange Commission Rule 14a-8(i)(7) allows companies to exclude resolutions that pertain to “a matter relating to the company’s ordinary business operations.” So, if the effort is intended to limit gun sales, corporate engagement may not be an impactful route with manufacturers.

However, corporate engagement combined with consumer pressure has led several large retailers to stop selling assault weapons, and in some cases, guns altogether. Many have also stopped selling ammunition, high-capacity magazines or “bump stock” adaptors that have been implicated in mass shootings. The reputational risk of being associated with guns sales is real. Corporate engagement can focus on retailers’ role in the proliferation of weapons.

It can also be useful to follow the money with respect to corporate political giving or lobbying. Lobbying activities have been picking up in tandem with the rise in mass shootings. Gun rights groups, led by the NRA, have spent six times more money on lobbying since 1998 than gun control groups, led by EverytownUSA. Of the $190m that the NRA has spent on lobbying in this time, $113m has been since the Sandy Hook shooting in 2013.

But corporate political giving is not based on a single issue, like guns, so it can be more opaque. And companies often support politicians on both sides of the gun debate or funnel money through political action committees and Super PACs, which makes the issue even more convoluted.

Understanding whether a company has policies and procedures to govern political giving is the first step. Advisers should be prepared for this conversation.

The Center for Political Accountability in Washington, DC, publishes the CPA-Zicklin Index each year, focusing on transparency in corporate political giving. This can be a resource for advisers and a road map for corporate engagement.

Guns have always been present in America, but not like this. In 1980, the term “mass shooting” was only mentioned twice across American print media, with both referring to shootings in Afghanistan. Today, there are 1,000 each year. Nearly 25% of the mass shootings since 1969 have occurred in the past five years. So advisers must be prepared for deeper conversations on the subject. It doesn’t appear to be going away anytime soon.

Blaine Townsend is executive vice president and director of the sustainable, responsible and impact investing group at Bailard.