Has It Become Politically Incorrect to Own Gun Stocks?
With the recent tragedy in Newtown, Conn., and the ensuing debate about gun control, are gun-related investments gaining more taboo status than they already have?
Witness recent moves by investment houses to defend or back away from such investments. The Vanguard Group, an investment company, issued a statement this week explaining why the firm is the largest owner of Smith & Wesson Holding stock.
Private equity firm Cerberus Capital is selling its gun holdings, called "Freedom Group", that includes the manufacturer of the gun used in the Newtown massacre.
This follows a review by California State Teachers' Retirement System (CalSTRS), the largest teachers' retirement fund in the United States into its investments in the private equity firm because of those holdings. (Read More: Thriving Gun Industry Hammered After Newtown Massacre)
Retailer Dick's Sporting Goods has suspended sales of some of its rifles. And the $150.1 billion New York State Common Retirement Fund and New York City's pension funds are reviewing investments in firearm manufacturers.
Firearms, like tobacco and alcohol, are products that lie at the center of ongoing social debates.
But now the debate about gun ownership is intensifying. Until now, the debate has mainly centered on social or second amendment issues, the right to bear arms. Suddenly, the conversation has moved to include investor responsibility—the power of money--in fostering the production of goods that can been seen as detrimental to society.
Since Friday, shares of Smith & Wesson have lost roughly 15-percent and Sturm Ruger is down about 12 percent. Both companies manufacture and sell guns. These stocks have moved lower while the broader market has gained nearly 2 percent in the same time period. Both of those companies have market capitalizations of less than $1 billion—small by institutional standards.
What about the impact on bigger companies with weaker links to the gun debate?
"I would be surprised if the concerns would spread to a Wal-Mart or a Dick's Sporting Goods," says Doug Sandler, Riverfront Investment Group Co-Founder and Chief Equity Strategist. "I don't think it would extend to those, but it might."
It is not clear if Vanguard and Cerberus are getting ahead of a public relations problem or responding to client demands. A spokesperson at Vanguard said they issued their statement after hearing from a "handful of clients" but, mainly in response to reporters' questions.
"It is apparent that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level," said Cerberus, which has more than $20 billion under management.
But various private money management firms and advisers say they've had very few calls or email from retail clients about the issue. (Read More: Congressional Backing Grows for Gun Control Debate)
Most money managers point to the existence of socially responsible funds for investors looking to avoid a clash between their money and their morals. A screen for social issues can include guns but, according to Riverfront's Sandler, has not been the top concern for investors interested in social issues. Socially responsible funds can address issues ranging from tobacco to alcohol to animal testing.
Neuberger Berman Socially Responsive Fund has a weapons screen and owns no gun manufacturers or retailers. They declined to say whether or not they've had more investor interest in their fund since Friday.