Several hip-hop rappers are known for their intense lyrics about guns and firefights – but not about investing. That is, until this year.
Since May 2015, iconic rapper Snoop Dogg (net worth estimated at $135 million), along with middle-linebacker Bobby Wagner of the Seattle Seahawks, forward Matt Barnes of the NBA’s Memphis Grizzlies, and angel investor Ron Conway all have something in common. They are all native Californians and multi-millionaires – and they are also taking a stand against the recurring gun violence by targeting the top gun manufacturers for divestment from mutual funds who own those equities, especially funds listed in a 401(k).
In this YouTube video campaign, along with the Twitter (TWTR) hashtag #ImUnloading, Snoop, Conway and others pledge their commitment to divest their portfolios and retirement plans from major gun manufacturers. The top two pure-play gun maker equities are Sturm, Ruger & Co (RGR) and Smith & Wesson (SWHC), which make assault rifles like those used in mass shootings. A third firm, Olin Corporation (OLN), owns Winchester Ammunition.
Together, the combined market cap of these three firms total $5.7 Billion, of which approximately $2 Billion is held by mutual funds. Over the past five years, Smith & Wesson (+422.7%) and Sturm Ruger (+255.9%) have achieved extraordinary gains in market value, while Olin has lagged (+7.6%) the S&P500 (+67.1%), as of 12/9/2015. In fact, Smith & Wesson is up nearly +15% in December since the mass shooting in San Bernardino, California, as customers rush to stock up on ammo and more weapons after each of these murderous events.
Can divestment of pure-plays that gain every time there is a mass shooting work? Do investors care that these firms create products of mass murder?
The Campaign to Unload and States United to Prevent Gun Violence organized the viral YouTube video and the website UnloadYour401k.com to test out if everyday investors will divest. As SWHC and RGR are part of index funds, like those provided by Fidelity and Vanguard, investors would need to allocate to actively managed funds and out of passive index funds if those choices exist in 401(k)s. Increasingly, large firms are refining choice to index funds, so that 401(k) decisions may not easily enable this kind of investor action.
More than 52 million Americans invest $4.4 Trillion in more than 515,000 401(k) plans sponsored by their employers, according to the Investment Company Institute. Participants targeting divestment hope that the gun manufacturers will feel the pressure of a subsequent increased cost of capital from investors selling their stocks, and possibly realize the firms should support stricter regulations and process for acquiring firearms and ammunition. Millennials, who are dedicated to investing for impact, do not generally resonate with investments that cause harm, especially death.
Which mutual funds and ETFs allocate the biggest share of their fund to SWHC, RGR and OLN, the top three equities focused on guns and ammo? Our team at HIP Investor analyzed nearly 600 funds that have the highest percentage of their fund allocated to at least one of these equities. Then we combined those fund weights and ranked the top 19 funds
The most-exposed fund is Morgan Dempsey Capital Management’s small/micro-cap value fund (MITYX), where 7.6% of this $23 million fund is invested in Sturm Ruger (RGR). Touchstone Investments’ Small Cap Core Fund’s (TSFYX) invests 5.8% in total to the combination of Olin Corp and Sturm Ruger, summing to almost $42 million of “gun exposure.” The Touchstone fund is sub-advised by The London Company, whose team includes two alumni of Virginia Military Institute (VMI) and according to its website, invests like a “conservative, rational business owner.” Will investors agree?
Interestingly, the “guns and ammo” fund list includes two water funds, iShares Global Water (DH20) (listed in London), and Guggenheim S&P Global Water ETF (CGW). Both funds own Olin, which makes bleach and other chemicals for municipal water treatment, in line with their fund’s theme – but comes with the surprise of owning Winchester Ammunition.
For investors who seek to divest, here are three dilemmas:
- Do you buy equities that sell products that can be used to create mass harm, even if they gain in stock value?
- Do you own a fund intended to facilitate cleaner drinking water that also owns subsidiaries that sells ammo for automatic weapons?
- Do you invest in your 401(k) even if there is a small allocation inside index-based funds?
Investors seeking to take action, and unload their portfolio of companies making harmful products, have difficult choices. Fund managers need to prepare for more activist investors – who may choose to divest if the fund’s strategy conflicts with building a better world.
Fabian Willskytt is a director of analytics and client solutions, and R. Paul Herman is chief investment officer and CEO of HIP Investor (www.HIPinvestor.com), which rates 13,500 securities globally on Human Impact + Profit, and serves investors, advisors, fund managers and retirement plans with ratings and model portfolios.DISCLOSURE: This information is for education purposes and do not constitute an investment recommendation. Past performance is not indicative of future results. All investing incurs risks. This is not an offer of securities.
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