The Market's Measure
Remington gun Copyright Scott Olson, Getty Images

Don’t Own A Gun? Maybe Your Fund Does

It’s not always easy to find out.

Typically, there’s signage posted at the entryway to law enforcement and courts buildings requiring visitors to check their weapons before entering the buildings’ secured areas. There’s very little signage warning investors about weaponry in their exchange traded fund portfolios, however.

In the wake of the Florida school shooting, many current and prospective shareholders worry that they may be inadvertently supporting gun and ammunition manufacturers. Few, however, have taken the time to actually peruse their ETF portfolios for gunmakers’ names. Even if they did, the names don’t jump off the pages of a fund’s prospectus. Oh sure, there’s Sturm Ruger & Co., Inc. (NYSE: RGR), a well-known producer of pistols, revolvers and rifles. That’s pretty obvious. But the famous Smith & Wesson brand is now dressed rather inconspicuously as American Outdoor Brands Corp. (Nasdaq: AOBC). With a name like that, you’d think they made patio furniture, not firearms. Likewise for Vista Outdoor (NYSE: VSTO). At least VSTO’s product line includes camping gear along with all the firearms and ammunition.

Did you know chemical maker Olin Corp. (NYSE: OLN) owns the Winchester brand of guns and ammo? Or that National Presto Industries, Inc. (NYSE: NPK), famous for its line of small kitchen appliances, is actually a defense company that makes more money from the sale of ammunition and other lethal materiel than it does from consumer goods?  

There are 99 ETFs marketed in the United States that hold one or more of these gun and ammunition makers. One fund, the PowerShares PureBeta MSCI USA Small Cap Portfolio (NYSE: AMEX), holds all five. Others own just a single issue. And, of those, some have rather large positions.

Take the PowerShares DWA Basic Materials Momentum Portfolio (Nasdaq: PYZ) as an example. PYZ tracks a Dorsey Wright index that selects and weights stocks in the basic materials sector on the basis of their price momentum. Currently, PYZ devotes 3.33 percent of its portfolio to OLN.

Then there’s the Guggenheim S&P Global Water ETF (NYSE Arca: CGW), a cap-weighted portfolio of water utilities, equipment and materials companies that gives over 2.42 percent of its real estate to OLN.

The VanEck Vectors Spin-Off ETF (NYSE Arca: SPUN) tracks an index of companies that have been spun off from their parent companies. VSTO, by virtue of its 2015 breakaway from Alliant Techsystem, Inc. (NYSE: ATK) takes up 1.46 percent of the SPUN portfolio.

While there’s no Surgeon General’s placard warning investors of a fund’s specific guns and ammo holdings, an ETF’s Environmental, Social and Governance score can indicate the need for closer examination of the portfolio.

The MSCI ESG Fund Quality Score takes the measure of an ETF’s underlying stocks to manage ESG risks on a scale of 0 (least capability to manage risk over the medium and long term) through 10 (greatest ability to manage risk). No matter where you line up on the issue of gun ownership, especially of assault-style weaponry, you can’t deny the social risk it carries.

None of ETFs we’ve mentioned are high on the ESG scale. Currently, the PowerShares PYZ pulls down a rather lowly 3.51 score. The Guggenheim CGW registers a 5.23 reading while the VanEck SPUN portfolio tips the scale at 4.17. Low ratings such as these ought to engender curiosity about the funds’ holdings for investors worried about exposure to lethal weaponry.

While gun control legislation may be still be a long way off, wary investors can certainly vote on firearms with their wallets now.

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