ETFs Holding Guns, Opioids & Prisons

June 22, 2018

"Impact investing" often gets conflated with "environmental, social and governance" (ESG) investing, but though the two share much crossover, their goals are still subtly different.

Whereas ESG investing is about investing in companies whose business practices rank favorably along three particular factors (eco-friendliness, social causes and good corporate governance), impact investing is about taking into account in your decision-making process the impact companies have on their communities and on the world at large.

To impact investors, sociopolitical controversies such as immigrant detention, mass shootings and the opioid crisis can be portfolio game changers. Hundreds of ETFs hold stocks related to these three recent flashpoint issues—and not always the ones you might expect.

Immigrant Detention-Related Stocks

Although most of the companies involved in the business of detaining and deporting undocumented immigrants to the U.S. are privately owned, a few are publicly traded.

Perhaps the two most visible ones are private prison operators Geo Group (GEO) and CoreCivic (CXW), formerly Corrections Corp. of America. Together, these two companies have more than $300 million worth of contracts with the U.S. Immigration and Customs Enforcement to operate immigrant detention facilities across the country.

Other publicly traded companies provide logistical or administrative assistance. General Dynamics (GD), for example, has contracted with the Office of Refugee Resettlement to help monitor and track children as they move through the government's shelter system and into foster care.

According to FactSet data, 263 ETFs hold shares of at least one of these three companies. Below are the 10 ETFs with the highest aggregate weight:

 

10 ETFs With Highest Weighting In Detention-Related Stocks
Ticker Fund Allocation Weight Combined Market Value ($M) Which Stock(s)?
KBWY Invesco KBW Premium Yield Equity REIT ETF 6.24% 24.79 GEO, CXW
ITA iShares U.S. Aerospace & Defense ETF 5.67% 338.99 GD
PPA Invesco Aerospace & Defense ETF 5.61% 57.81 GD
SRVR Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF 4.57% 0.12 GEO, CXW
DFEN Direxion Daily Aerospace & Defense Bull 3X Shares 3.95% 3.07 GD
PLCY EventShares U.S. Policy Alpha ETF 3.84% 0.52 CXW,GD
XAR SPDR S&P Aerospace & Defense ETF 2.93% 42.39 GD
JETS US Global Jets ETF 2.77% 2.76 GD
XLI Industrial Select Sector SPDR Fund 2.32% 301.34 GD
SDIV Global X Superdividend ETF 2.07% 19.40 GEO, CXW

 

Defense, But Also Real Estate & IT

One might assume that defense or national security-themed ETFs would dominate this list. However, the ETF with the top aggregate weight is in fact the Invesco KBW Premium Yield Equity REIT ETF (KBWY), which tracks small- and midcap equity REITs weighted by dividend yield.

Other nondefense-related ETFs with notable weightings include the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR), which tracks real estate stocks related to data and infrastructure; the EventShares U.S. Policy Alpha ETF (PLCY), which tracks companies poised to benefit from government policy changes; and the Global X Superdividend ETF (SDIV), which holds global high-yield stocks. SRVR has 4.6% in detention-related companies, PLCY has 3.8% and SDIV has 2.1%. 

Assetwise, many of these ETFs are small funds: PLCY only has $13.5 million in assets under management, while SRVR only has $2.6 million. That means the market value of their positions is minimal. PLCY's position in CoreCivic and General Dynamics translates to just $520,000 worth of stock, while SRVR's position in Geo Group and CoreCivic translates to just $120,000.

Broad Stock ETFs Hold Billions

The ETFs holding the largest dollar amount of detention-related stocks are listed below:

 

10 ETFs With Highest Market Value of Detention-Related Stocks
Ticker Fund Allocation Weight Combined Market Value ($M) Which Stock(s)?
SPY SPDR S&P 500 ETF Trust 0.23% 611.43 GD
VIG Vanguard Dividend Appreciation ETF 1.36% 373.77 GD
IVV iShares Core S&P 500 ETF 0.23% 354.86 GD
ITA iShares U.S. Aerospace & Defense ETF 5.67% 338.99 GD
XLI Industrial Select Sector SPDR Fund 2.32% 301.34 GD
VOO Vanguard S&P 500 ETF 0.25% 215.82 GD
VTI Vanguard Total Stock Market ETF 0.20% 191.97 GD, CXW, GEO
VNQ Vanguard Real Estate ETF 0.52% 153.14 GEO, CXW
VTV Vanguard Value ETF 0.41% 149.61 GD
IJH iShares Core S&P Mid-Cap ETF 0.30% 146.78 GEO, CXW

 

Most of these are large, popular broad-market or sector funds; in fact, the list includes some of the largest (by assets) ETFs on the market. The $268 billion SPDR S&P 500 ETF Trust (SPY) alone holds $611 million in General Dynamics stock, while the $152 billion iShares Core S&P 500 ETF (IVV) holds $355 million.

Together, these 10 ETFs own $2.84 billion worth of stock in Geo Group, CoreCivic and General Dynamics. That's more than the current market cap of CoreCivic, which is $2.5 billion.

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