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July 14 — Gun control advocates might be unpleasantly surprised to learn they’re backing the firearms industry via their retirement investments.
Mass shootings across the U.S., including the killing of at least five Dallas police officers and the wounding of nine more by a heavily armed sniper on July 7 and the June killing of 49 and wounding of 53 by a lone gunman at the Pulse nightclub in Orlando, Fla., have renewed calls to ban or restrict gun use or ownership.
Many of those outraged by gun rampages would cringe at the thought of investing in and supporting gun industry profits. Yet, rather than seeking socially conscious plan investments, they are content to select investments based on return, diversification and expense.
However, a peek into the investment portfolios of some of the most popular mutual funds used by defined benefit plans and offered in 401(k) plan lineups reveals a surprising fact: plan dollars are invested in the makers and sellers of firearms and ammunition.
Vanguard Group Inc., a mutual fund provider in Malvern, Pa., is one of the world's largest providers of passively managed index funds, which track an index of stocks, such as the Standard & Poor's 500 Index. A look into the holdings of its funds, particularly its popular index funds, shows its exposure to gun industry companies.
Ariana Stefanoni Sherlock, a spokeswomen for Vanguard, told Bloomberg BNA in a July 11 e-mail that Vanguard's “holdings in gun makers are predominantly in index funds, which are required to track benchmarks.”
Sherlock said that 23 of Vanguard's index funds invest in one or both of Smith & Wesson, of Springfield, Mass., and Sturm, Ruger and Co., of Southport, Conn., both firearms manufacturers.
Those companies are more likely to turn up in Vanguard's small company index funds and the small company funds of other investment houses, John Hale, head of sustainability research at the investment research firm Morningstar Inc. in Chicago, told Bloomberg BNA July 11.
However, he said that publicly traded firearms retailers such as Wal-Mart Stores Inc., of Bentonville, Ark., Sears Holdings, of Hoffman Estates, Ill., Dick's Sporting Goods Inc., of Findlay Township, Pa., Cabela's, of Sidney, Neb. and Vista Outdoors, of Clearfield, Utah, show up in more broad-based index funds from Vanguard and others.
Most of these gun retailers derive no more than 5 percent of their revenue from the sale of guns and ammunition, Hale said. The exception is Cabela's, which he said takes in about 10 to 25 percent of its revenue from such sales.
Vanguard's most popular index funds, as well as the index funds of other investment companies, generally have small exposures to any one company. The firm's $239.6 billion S&P 500 Index Fund, for example, has a .6 percent exposure to Wal-Mart, while Vanguard's $439 billion Total Stock Market Fund has a .51 percent exposure to the mega-retailer. Thus, a plan participant with $10,000 invested in the S&P 500 Index Fund would have just $60 invested in Wal-Mart.
Hale said that 401(k) plan lineups that consist solely of passively managed index funds are likely to have gun company exposure. The most popular actively managed funds, however, are less likely to have such exposure, he said. In any event, those who want to know what their funds are invested in can check each fund's holdings in its monthly or quarterly listings, Hale said.
Vanguard offers an online investment tool that permits financial advisers and investors to enter a company's stock ticker symbol and see a display of the company's exposure in each Vanguard fund. Use of that tool shows that the actively managed Vanguard Strategic Small Cap Equity Fund, for example, has a .56 percent exposure to Smith & Wesson and .54 percent exposure to Sturm, Ruger.
Rather than checking the holdings of each fund each month or quarter, retirement plan investors motivated to avoid gun investments have other options.
Sherlock said that Vanguard investors who want to be sure that none of their money is invested in the firearms industry can select the Vanguard FTSE Social Index Fund. That fund, she said, “seeks to track a benchmark of large- and mid-capitalization stocks, and excludes companies that are involved with firearms, tobacco, alcohol, adult entertainment, gambling, nuclear power or those that violate fair labor practices and equal opportunity standards.”
John E. Woerth, another Vanguard spokesman, told Bloomberg BNA on July 12 that a socially responsible option, such as the Vanguard Social Index Fund, is available to about 20 percent of the defined contribution plans that the company serves as recordkeeper.
Calvert Investments, based in Bethesda, Md., is one of a number of firms that offers both passively managed and actively managed socially responsible mutual funds to pension plans and retail investors. Erica Lasdon, Calvert's vice president of research and advocacy, told Bloomberg BNA July 12 that, similar to the Vanguard Social Index Fund, her firm's investments stay clear of a broad-base of financially and societal risky categories, including tobacco and fossil fuel companies, along with those profiting from firearms sales.
She said that Calvert's investors who want to avoid a specific risk area, such as firearms companies for example, are also happy to restrict their investments to the other risk areas that her firm seeks to avoid.
Plan sponsors also have the option to customize their investments to exclude firearms companies, Hale said. Defined benefit plans and larger defined contribution plans would have more flexibility to create the separate accounts needed to do so, he said.
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Vanguard's online tool for searching its funds' holdings is at https://advisors.vanguard.com/VGApp/iip/site/advisor/analysistools/holdingssearch.
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