Institutional investors and individuals who choose investments in their retirement and brokerage accounts may not know it, but it's tougher than they think to follow socially responsible investment principles and divest their portfolios of the stocks of firearms makers and manufacturers of ammunition.
The reason? Those stocks get classified across multiple industries, instead of clearly labeling them as what they are.
Reuters reports that despite efforts on the part of large public pension plans and individual investors to divest their portfolios of gun and ammunition manufacturers—a process that increases in the wake of mass shootings—it's not as easy as pinpointing them and eliminating them from a portfolio.
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Instead, a Reuters analysis of Securities and Exchange Commission filings indicates that U.S. mutual funds classify such investments across a wide array of industries: aerospace and defense, consumer goods, health care, household products and even leisure and retail, with some mutual funds just going along with the classifications used by the provider of their benchmark index.
For instance, SEC filings indicate that for several years, the Oppenheimer Global High Yield Fund (OGYAX.O) listed debt guaranteed by Remington Outdoor Co Inc, a manufacturer of bullets, handguns, shotguns and rifles, as an investment in "health care providers & services." Beginning in 2014, the fund grouped senior notes issued by FGI Operating Co LLC, a Remington subsidiary, with similar securities issued by hospital operators such as HealthSouth Corp (HLS.N) and Tenet Healthcare Corp (THC.N), according to SEC disclosures.
But last month, the fund changed the FGI notes, listing them as an investment in the aerospace and defense sector, according to a quarterly disclosure with the SEC. The report said that OppenheimerFunds declined to comment about its classifications.
The Unitarian Universalist Association uses separate accounts, as well as outside help, to locate and remove objectionable large-cap stock holdings, with Toronto-based ESG advisor Sustainalytics identifying and eliminating those that don't pass UUA's screens for environmental, social and governance criteria.
The report quotes Tim Brennan, UUA treasurer and chief financial officer, saying, "Certainly there is heightened concern here at the UUA after an event like [the shooting in Texas]," adding, "But from an investment perspective, I would describe it as a steady concern."
While some mutual funds make it easy to identify such holdings, others don't; while a Valic Co core bond fund classifies the FGI senior notes backed by Remington as a "firearms & ammunition" investment, as does the City National Rochdale Fixed Income Opportunities Fund (RIMOX.O), the Hotchkis & Wiley High Yield Fund lists the FGI notes and debt issued by top ammunition maker Vista Outdoor Inc (VSTO.N) as a "personal and household products" investment.
That fund also lists debt from American Greetings Corp [AMER.UL], the world's largest greeting cards company, in that category, according to SEC filings.
Even Fidelity's $4.8 billion Nasdaq Composite Index Fund (FNCMX.O) classifies shares of American Outdoor Brands Corp (AOBC.O) (the name was changed from Smith & Wesson Holding Corp in January), as a leisure product—a classification that also includes toymakers Hasbro Inc (HAS.O) and Mattel Inc (MAT.O).
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