Gun Control and Your Investment Portfolio

Three Things to Know About Guns and Your Investment Portfolio

In the wake of the horrific Parkland shooting, we are seeing an unprecedented wave of investor interest regarding whether they have any gun companies in their portfolios. Here are three things investors should know:

1. How are companies involved in guns?

In the United States, gun violence typically involves weapons produced expressly for civilian purposes. Environmental, social and governance (ESG) research can classify a company’s involvement in the civilian weapons industry as manufacture- or retail-related, and can estimate the share of total revenue from each area and in total. Some investors prefer to focus on manufacturing activity only, while others also want to zero in on retail activities. Research on military weapons involvement is also available, but is treated as a separate concern with different parameters. Additionally, some investors are interested in companies that support the National Rifle Association (NRA), but research on that is limited at this time.

2. Are there gun company stocks or other gun-related exposures in my investment portfolio?

Probably not to any large extent. Globally, the total number of companies with any firearms involvement is small, so few are found in typical broad-market indices. More sizeable index constituents tend to have minimal revenue share from firearms. Companies with significant revenue share from guns tend to be small constituents of broad-market indices. In general, our research shows that across large-, mid- and small-cap U.S. equity indices, companies involved with guns make up less than 1% of an individual index. Looking outside the United States, that percentage tends to be even lower.

3. What can I do?

As an investor, you have three main options. You can pursue one or several of the strategies, which include:

  1. Monitor: Ask your manager to analyze your exposure to gun companies. Many investors would like to know the scope of their involvement even if they are not ready to take any action. 

  2. Screen: Ask your manager to apply a screen that removes companies with gun involvement and ensure your portfolio contains only companies that meet your definition for acceptable products. For most investors with diversified portfolios, the impact of gun company disinvestment on tracking error should be minimal; however, there may be tax implications, especially for long-term owners. Your advisor can help you navigate any tax matters. 

  3. Vote: Ask your manager about their guidelines regarding voting gun safety-related shareholder proposals. For example, in 2018, three proposals were filed by Catholic institutional investors asking companies with gun involvement to report on their own policies related to the mitigation of harm associated with these products. Such resolutions are non-binding, meaning that company management has no obligation to take action, regardless of the level of shareholder support. Voting in favor of the resolutions, however, is a way for shareholders to signal that they believe encouraging safe gun use should be a priority for companies that sell such products.

Rather than feeling helpless in the face of tragedy, you can become an active participant in the gun-violence conversation by taking control of your investment choices.

Potential Parametric solution

Parametric has been offering client-driven, index-based portfolios that incorporate ESG criteria for more than 15 years. Our robust and continually evolving menu of ESG screens and licensed indexes gives investors a wide range of portfolio design choices. In many cases, however, investors are well served by a standardized portfolio with minimal modifications. With this in mind, we’ve designed a series of risk-controlled, index-like exposures that can be used as a core equity portfolio allocation while aligning with common responsible investing themes.

Jennifer Sireklove

Jennifer Sireklove, CFA, Managing Director, Investment Strategy 

Jennifer leads the Investment Strategy Team at Parametric, which is responsible for all aspects of Parametric’s equity-based investment strategies. In addition, she has direct investment responsibility for Parametric’s Emerging Markets and International Equity strategies and chairs Parametric’s Stewardship Committee. Previously she helped build Parametric’s active ownership and custom ESG portfolio construction practices. Prior to joining Parametric in 2013, she worked in equity research, primarily covering the energy, utility, and industrial sectors at firms including D.A. Davidson and McAdams Wright Ragen. Jennifer earned an MBA in finance and accounting from the University of Chicago and a BA in economics from Reed College. A CFA charterholder since 2006, Jennifer is a member of the CFA Society of Seattle.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss.