My Sunday morning newspaper headline proclaims that “The Gun Debate Regains Sense of Crisis” and social media is filled with discussion – some thoughtful, some insipid – on what direction the country should take. One friend and MrFireStation reader is taking an interesting tack on driving the change he would like to see: eliminating any investments in his portfolio that include gun companies.
Regardless of your opinion on the complexities and Constitutional implications of gun control in the country, I think we should all support ‘voting with our dollars’ for the change we would like to see in the world. This can include the products we do (and don’t) buy at the store, and it can be extended to what companies we are invested in.
Socially responsible investing (SRI) has been around for a long time. Pax World Funds is credited as being the first socially responsible mutual fund in 1971. The approach is gaining in traction with $6.4B invested in socially responsible mutual funds and ETFs last year – up +10% versus the prior year according to Morningstar. Goldman Sachs, JP Morgan and Blackrock have all made big acquisitions in the SRI space or expanded offerings of their own in recent years.
Each SRI fund is structured a little differently, but in general, they focus on companies whose mission and business is focused on societal & environmental benefits as much as shareholder return. Many expressly avoid investments in companies focused on tobacco, alcohol, firearms, gambling, abortion, pornography, fossil fuels, and other things that fund managers and their investors believe that are not socially responsible.
Most studies of SRIs that I find online suggest that their returns are slightly below comparable funds that invest in all businesses. This Wall Street Journal ARTICLE from 2015 has a chart that makes the comparisons. I imagine that since these are actively-managed funds, they carry higher fees that their competitors (that include low cost index funds). For many people, this potential trade off in return is well worth it – and of course historical performance is no indicator of future returns.
For our part, we have not sought out any SRI funds for our portfolio. When it comes to equities, we are highly positioned in S&P 500 index funds, which I do not believe include the major firearms manufacturers. While SRIs are said to hold as much as 20% of the total value of the stock market, I’m not convinced of the efficacy of their impact on driving societal change. Additionally, based on what I’ve seen, I don’t think any of the major funds exactly reflect my view of socially responsible. I’ll look into it some more this year when we sit down with our financial advisor.
Have you done any socially responsible investing? In what other ways do you ‘vote with your dollars’ on principal?
Image Credit: Pixabay
MrFireStation 
Thanks for the thought-provoking post. Like you, I don’t own any SRI funds. My goal in investing is to maximize my returns and minimize my risk. That it.
I do use some of the proceeds from my investments for various causes I believe in.
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That is a good thought – use your investing proceeds to support causes directly may be a more effective route.
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Well-written and well-reasoned, Chief! Right now, I’m working with my investment advisor to eliminate any investments in gun manufacturers. We have no direct investments in them and are investigating ETFs. He is a senior officer in a huge financial company with over $800 Billion in assets. He has now raised these issues to the highest levels of his firm. I do not currently own any SRIs, but will check them out. Thanks for that tip.
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The more I read about them, the more interested I get in SRIs. Mrs.FireStation is also interested in assessing them.
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https://www.reuters.com/article/us-usa-guns-blackrock/blackrock-puts-gunmakers-on-notice-after-florida-school-shooting-idUSKCN1G62PC
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Good that they are talking about it, but it looks like they are only talking (and listening) at this point. It’s a complicated issue, so I wouldn’t expect them to move too fast.
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OK, this is something that concerns me….the sin companies in my portfolio. The Biggest is BATS (British American Tobacco) which is horrendously high in the FTSE….are there guns companies in the S&P500? Tobacco I can reluctantly accept, as most people make a conscious effort to smoke today, but as Brit, guns are a step too far..
Found this https://goodbyegunstocks.com/fund/SPY which only has Walmart….which seems a harsh classification!
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There are no gun makers in the S&P 500.
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Northrop Grummond & General Dynamics are big multinationals that sell military armaments that include ‘small arms’. Not sure if this includes weapons sold thru gun dealers.
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Walmart probably sells a lot of guns, because they sell a lot of everything. They did stop selling so-called ‘assault weapons’ a few years ago (2015).
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Walmart is nicknamed by gun owners “The Gun King.” They are the largest seller of firearms in US. in 2015, they made a decision not to carry AR-15-style semi-automatic weapons. They remain the largest. Personally, I do not oppose non-automatic weapons. Many of my friends who live in rural areas are hunters, as their families have been for generations. Since Walmart does not manufacture guns, they are in my portfolio.
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I have to say, that I was more than a little disappointed to read this post. I’ve been reading your site for quite a while, and have enjoyed many of your FI posts. I read for financial content not political influence. I can get political views on any number of cable news station 24×7. In full disclosure, I am a life long 2nd amendment supporter. But hey, it is your website, and it’s your right to blog on any topic you choose. But please recognize, that you very well may have just alienated upward of 50% of your readers with this type of politically charged topic. Fortunately, we all do have the option of investing in SRI’s (or not), just like we also have the option of reading other websites that don’t (how ever subtly) propagate a particular political view. Just thought it was worth giving a “thoughtful (possibly insipid)” flip side view on the topic.
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Sorry you feel that way, Thom, but you may be surprised to hear that I’m also a very strong supporter of 2nd Amendment rights, although not a gun owner myself. I have merely advocated in this post that we support people who ‘vote with their dollars’ and proposed SRIs as a possible way to do so. Frankly, I’d rather have them doing that than pressing their views on the rest of us through government.
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I’m in full support of anyone voting with their dollars, regardless of their view. It’s each person’s right to do so. I appreciate your response, and apologize, if I came off too strong in my reply. But we are so ambushed with political commentary and bias these days (from all sides), that seeing your post touched a nerve. I guess it’s a sign of the the crazy political polarization in our world these days…
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It’s funny, Thom – I really wondered what the right picture for this post should be. I wanted to be non-partisan on the topic, but worried this photo was a big grim looking and would take people to the wrong place. It was the most basic photo I could find – although I could have used one simply with some investment papers. I probably made things look too dark.
Anyway, if you are interested, I do post political commentary on a Facebook page called “LibertyDevils”. Look it up if you enjoy a classical Libertarian POV.
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I’ll definitely give your FB page a shot (no pun intended!) Lol! Thanks again for the level commentary. Always appreciated.
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We just had a presentation on ethics in our latest meetup that we organized in Belgium over the last weekend. Albeit not specifically debating guns, the “vote with your wallet” was definitely one the best things we thought one could do. But voting with the wallet in this case means not buying certain products, not necessarily not owing certain stocks. Technically, when you own stocks, you don’t directly fund the company. That already happened during the issuing of the shares (DRIP’s may be an “issue”). Obviously the share price does affect how companies can obtain funds/loans. Not sure if we own gun manufacturers in our ETF’s, but I would not be worried by it. However, I would not buy an assault weapon (nor is that very easy on this side of the pond).
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Agree – the idea of ‘voting with your wallet’ typically speaks to our role as a consumer, but as you say, market capitalization of a company may also impact the Treasury aspect of a company.
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SRI to me is 80% marketing and 20% passion about making change. By definition an actively managed SRI fund provides a constrained investment opportunity set and higher fees than a passively managed index fund. Not for me.
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The high fee structure vs. a pure index fund has been the thing that has kept us away too.
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