Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside

Feb 16, 2018 @ 1:04 pm

By Jeff Benjamin

It is perhaps a sad sign of the times when the latest episode of deadly gun violence doesn't bring a fresh wave of calls from clients seeking to screen out investments in weapons manufacturers.

Financial advisers who specialize in various forms of environmental, social and governance investing say mass shootings have become so commonplace that the appetite for screening out gun company stocks has been holding steady over the past several years, but not climbing after a mass shooting.

"This topic has been a major concern for years for a lot of my clients, but I haven't seen any new interest from the recent shootings," said Mitchell Kraus, a partner at Capital Intelligence Associates.

While Mr. Kraus said the Valentine's Day mass shooting at a Florida high school didn't spark any new calls from clients, he has had clients call following other incidents of gun violence checking to make sure they are still not invested in any weapons companies.

"I always expect an increase in calls and I rarely see it," he said. "At this point, with as many shootings as we've seen over the past few years, those conversations with clients have already been had."

It has become an unfortunate reality across the financial planning space that the steady stream of gun violence and mass shootings is barely moving the needle in terms of increased investor advocacy, according to Meggin Thwing Eastman, head of ESG impact and screening research at MSCI.

"It is certainly a long-standing issue and certain investors have been screening out weapons companies for decades," she said. "I wish I could tell you there's a spike in interest after gun violence, but the gun violence is so steady."

More predictable, Ms. Eastman added, is a short-term spike in weapons-related stock prices and an increase in retail gun sales. The market often reacts to gun violence by driving up the price of weapons-related stocks based on the assumption that tougher gun laws will follow.

The good news for investors wanting to avoid exposure to weapons manufacturers is that it is a relatively small group, she said. Therefore, unlike eliminating a major industry like oil companies, removing weapons companies tends to have a minimal impact on portfolio performance.

If the increasing string of gun violence isn't having a major impact on investing preferences, it is stirring more conversations with clients about gun laws, said Thomas Balcom, founder of 1650 Wealth Management.

Mr. Balcom, whose Broward County office is just 12 miles from Marjory Stoneman Douglas High School, where 17 people were killed on Feb. 14, said his clients are becoming increasingly vocal about ways to get the U.S. Congress to pass tougher gun laws.

"I have had clients that are both Democrats and Republicans alike state that they are in support of assault-rifle bans and restrictions," he said. "I would have to agree with them that assault rifles were not around when our forefathers drafted the Second Amendment in 1791. If they were, I believe that they would have agreed that assault rifles were not required for hunting and/or to protect one's family."

The political side of the growing gun violence is where some advisers find themselves walking a fine line, according to Alex Murguia, managing principal at McLean Asset Management.

"In terms of screening out weapons companies, it is starting at the conversation level and some clients will follow through and take action in their portfolios," he said. "But it gets tricky as an adviser, because the political debate either leans to the right or to the left. Unless it's part of your branding, we think it's best to stay politically agnostic."

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