AOBC American Outdoor Brands Corporation

By Dieter Holger 

U.S.-based open-end mutual funds and exchange-traded funds own nearly a third of the stock in America's two publicly traded gun companies, even as many investors are snubbing those shares.

In the wake of numerous mass shootings, the number of investors asking to screen out gun stocks from their portfolios "has noticeably increased over the last few years," says Andrew Wetzel, portfolio manager at F.L. Putnam Investment Management Co., a New England advisory with more than $2.2 billion under management.

Since Vista Outdoor Inc., a sporting-goods company, sold gun maker Savage Arms in July, the only two remaining gun-company stocks in the U.S. are Sturm Ruger & Co. and American Outdoor Brands Corp., owner of gun maker Smith & Wesson.

Funds hold about 30% of the two companies' combined shares, according to data compiled in late October for The Wall Street Journal by fund tracker Morningstar Inc. There are some 201 funds invested in one or both of the companies, mostly small-cap funds, reflecting the companies' market capitalization.

Funds continue to invest in these companies even as money managers like BlackRock Inc. and Vanguard Group launch new funds with an environmental, social and governance investing (ESG) tilt that tend to exclude weapons. Last year, money managers screened out weapons from $1.93 trillion of assets for their clients, up from $403 billion in 2016, according to US SIF: The Forum for Sustainable and Responsible Investment.

BlackRock's iShares Core S&P Small-Cap ETF (IJR) is the biggest fund investor in Sturm Ruger, holding around 6% of the company's stock, according to the Morningstar data. In all, 158 funds own 34% of the company. BlackRock's ETFs passively track stock-market indexes, so the company says it can't change the funds' holdings, but in recent years investors have poured assets into newer funds that screen out gun manufacturers. As of September, $7.5 billion of the assets managed by BlackRock excluded civilian firearms, up from $660 million in September 2014, according to the company. "While we cannot selectively divest, we understand there are a range of investor preferences," a BlackRock spokesman said.

Dimensional Fund Advisors' DFA US Small Cap Value Portfolio (I) (DFSVX) is the top fund investor in American Outdoor Brands, with around 3.3% of the company's shares. There are 121 funds invested in the company, holding 29% of its stock. DFA launched its first socially responsible fund in 2006 and now offers eight funds that don't invest in gun makers, "to help clients pursue higher expected returns in a way that's aligned with their values," a DFA spokesman said.

Sturm Ruger and American Outdoor Brands have underperformed the broad market this year. Sturm Ruger's shares are down 43% and American Outdoors shares are down 13%, compared with a gain of 16% in the S&P SmallCap 600 index, FactSet market data show.

"Both Sturm Ruger and American Outdoor Brands are small-cap companies with declining revenue and profit trends and are clearly facing risk related to the gun-control debate heading into the presidential election in 2020," Mr. Wetzel says. Sturm Ruger and American Outdoor Brands didn't respond to requests for comment.

Mr. Holger is an ETF/ESG markets reporter for Dow Jones Newswires in Barcelona. Email him at dieter.holger@dowjones.com.

(END) Dow Jones Newswires

November 03, 2019 22:14 ET (03:14 GMT)

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