Friday, December 15, 2017
Business

You may be investing in guns without knowing it

You probably own a stake in a gun manufacturer, whether you know it or not.

Just take a look at your 401(k) plan. If you're in one managed by Vanguard, BlackRock, Fidelity or just about any other mutual fund group, you're likely the owner of shares in the three primary publicly traded gunmakers: Smith & Wesson; Sturm, Ruger & Co.; and Olin Corp.

If you own any of the broad index funds or even a target-date retirement fund, you've got a stake in the gun industry.

Investments in gunmakers, at least over the past five years, have performed well. Shares of Smith & Wesson are up nearly 400 percent since 2010. On Monday, shares of Smith & Wesson reached their highest price since 2007 after President Barack Obama called for more gun control laws, leading investors to anticipate a rush of gun sales ahead of any restrictions.

What if you own one of these 401(k) plans but don't want to financially support gunmakers? Is there anything you can do about it?

There is a growing movement among public pension funds, public advocates and other organizations to help investors divest themselves of financial stakes in the gun and ammunition industry. A number of these initiatives began after the Sandy Hook Elementary School shootings in Newtown, Conn., and have been reignited after the killings in San Bernardino, Calif. The perpetrators of last week's mass shooting bought a cache of guns and ammunition — legally — including a Smith & Wesson M&P 15 .223-caliber assault rifle and a Smith & Wesson handgun.

The Campaign to Unload, for instance, is a group of more than 50 organizations across the country that are attacking the sources of funding for gunmakers. It set up a website — Unload Your 401(k) — that allows users to look up their retirement plans to see if they have financial exposure to gun manufacturers. Snoop Dogg, the rapper, has endorsed the Campaign to Unload. "I'm unloading for my loved ones that I've lost," he said in a statement. "I'm going all in for gun-free investing."

Last weekend, Letitia James, New York City's public advocate, took an even more unusual step. Hoping to cut off funding for gunmakers, she sought to pressure TD Bank, which has provided $280 million in financing to Smith & Wesson, to cut its ties with the gunmaker.

"As we stare at the financial smoking gun that enables gun violence, inaction is not an option," James wrote in a letter to TD Bank. "If you want to do business with New York City, you can't be in bed with companies that manufacture the agents that kill our children and families."

A spokeswoman for TD said, "We are deeply saddened by the events in San Bernardino and our sympathies go out to the individuals and their families affected by this tragedy. As a matter of corporate policy we do not comment on the nature and specifics of our relationships with our customers."

James is taking a page from other successful efforts to pressure "sin" industries like cigarettes and coal. While seeking divestments has long been popular, they have had little direct impact, according to studies, despite the headlines they often generate.

But efforts to prevent banks and other financing sources from lending money to certain companies have been far more effective. For instance, as chronicled in this column this year, a number of advocacy groups successfully ended the practice of mountaintop removal of coal in Appalachia, an environmentally devastating practice, by pressuring banks such as Bank of America, Citigroup, Morgan Stanley, JPMorgan Chase, Wells Fargo and Credit Suisse to choke off funding, which they did over nearly a decade of pressure.

Leah Gunn Barrett, executive director of New Yorkers Against Gun Violence, who is involved in the Campaign to Unload, said this tactic could have an impact. "They are impervious to public polls," she said. "It is all about money for them."

Last week, Stop Handgun Violence, a gun control organization in Newton, Mass., also looked to use financial levers as it continued to wage its campaign against Remington Outdoor (formerly the Freedom Group), the gun manufacturer owned by Cerberus Capital Management, a private equity firm. One of the guns used in San Bernardino was a Bushmaster AR-15, a Remington Outdoor brand.

After Sandy Hook, which also involved a Bushmaster rifle, several public pension funds that had money invested in Cerberus called on it to sell the company. Cerberus publicly pledged to sell, but after an unsuccessful auction, decided to maintain ownership while allowing investors to sell their stakes. Last spring, it bought out investors like the California State Teachers' Retirement System but maintained ownership of the company. Privately, the firm told investors it would be unfair to sell the company at a huge loss for investors who didn't have a problem with owning a gunmaker.

Now, Stop Handgun Violence has urged Americans to boycott all companies owned by Cerberus, including Shaw's, Star Market, Safeway, Osco Drug, and Steward Health Care. It's unclear how widespread the boycott will be or whether it will influence Cerberus' control of Remington Outdoor.

A spokesman for Cerberus declined to comment. In 2013, after Sandy Hook, the firm made clear in a statement that it did not want to get involved in social or political issues. Instead, it saw its job as trying to make money for its investors.

"As a firm, we are investors, not statesmen or policymakers," it said. "Our role is to make investments on behalf of our clients." It added: "It is not our role to take positions or attempt to shape or influence the gun policy debate."

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