Clients Asking For Gun-Free ETFs

In the two weeks since a former student killed 17 people with an AR-15 rifle at Marjory Stoneman Douglas High School in Parkland, Florida, investors are increasingly exploring environmental, social and governance (ESG) ETFs as a potential solution to divest portfolios of weapons manufacturers.

Since the shooting on Feb. 14, $147 million in assets have flowed into these kinds of ETFs, $64 million of which went toward funds that explicitly screen out some or all gun stocks, including Sturm, Ruger & Co.; American Outdoor Brands Corp.; and Vista Outdoor, Inc. (read: "ETFs Pressured To Drop Gun Stocks").

At first glance, these inflows appear minimal, especially compared with the roughly $18 billion in assets ETFs as a whole took in during the same period. As a result, many media outlets have reported that investors simply aren't interested in gun-free investments.

The reality, however, is more nuanced. Advisors say that investors want to go gun-free; they just don't know how.  

Advisors See ‘Surge Of Inquiries’

"The surge of inquiries we've had in the past five days is unlike anything I've ever seen before. We’ve been inundated," said Jennifer Sireklove, director of Responsible Investing at Seattle-based Parametric Portfolio Associates. The firm manages more than $230 billion in assets for endowments, high net worth individuals and teachers' pensions.

ETF.com spoke to eight registered investment advisors of various sizes, locations and philosophies; together they manage more than $500 billion in assets. Of these advisors, six had had clients contact them over the past two weeks with concerns about the presence of gun stocks in their portfolios.

"[The interest has come from] some people I wouldn't expect," said Sara Stanich, president and CEO of the $40 million Stanich Group in Brooklyn, New York, including "older clients who've never mentioned this kind of thing before."

Three of the advisors, including Stanich and Sireklove, had either transitioned, or had plans in place to transition, client assets away from gun stocks. Others were still researching or exploring their options.

Not From The Same Cloth

Investors wishing to divest from weapons manufacturers have a wealth of ESG ETF options. But it's important to note that not all ESG ETFs define exclusionary screens in the same way—or even use them at all.

Only 25 of 65 socially responsible ETFs, or 38%, explicitly screen out some or all gun stocks from their investment universe. They are listed in Table 1.

For another 28 ETFs, the question of whether or not to own gun stocks is irrelevant, as they are thematic funds focused on, say, solar power companies or green bonds. Six more ETFs are unclear in their documentation about whether they use exclusionary screens. 

 

Table 1: ESG ETFs That Screen Out Some Or All Gun Stocks
Ticker	Fund	Expense Ratio	AUM ($M)
DSI	iShares MSCI KLD 400 Social ETF	0.50%	$982.40
SUSA	iShares MSCI USA ESG Select ETF	0.50%	$662.98
ESGE	iShares MSCI EM ESG Optimized ETF	0.25%	$262.26
ESGD	iShares MSCI EAFE ESG Optimized ETF	0.20%	$177.40
CATH	Global X S&P 500 Catholic Values	0.29%	$137.88
MXDU	Nationwide Maximum Diversification U.S. Core Equity ETF	0.34%	$111.55
ESGG	FlexShares STOXX Global ESG Impact Index Fund	0.42%	$57.47
ESGU	iShares MSCI USA ESG Optimized ETF	0.15%	$53.08
NUEM	NuShares ESG Emerging Markets Equity ETF	0.45%	$42.74
NUSC	NuShares ESG Small-Cap ETF	0.40%	$42.51
NUBD	NuShares ESG U.S. Aggregate Bond ETF	0.20%	$41.23
NULG	NuShares ESG Large-Cap Growth ETF	0.35%	$40.55
NUDM	NuShares ESG International Developed Markets Equity ETF	0.40%	$40.33
NUMG	NuShares ESG Mid-Cap Growth ETF	0.40%	$40.07
NUMV	NuShares ESG Mid-Cap Value ETF	0.40%	$37.93
NULV	NuShares ESG Large-Cap Value ETF	0.35%	$34.34
ETHO	Etho Climate Leadership U.S. ETF	0.47%	$27.60
SUSB	iShares ESG 1-5 Year USD Corporate Bond ETF	0.12%	$24.59
ESG	FlexShares STOXX U.S. ESG Impact Index Fund	0.32%	$19.10
SUSC	iShares ESG USD Corporate Bond ETF	0.18%	$9.78
GUDB	Sage ESG Intermediate Credit ETF	0.35%	$9.75
LRGE	ClearBridge Large Cap Growth ESG ETF	0.59%	$4.50
YLDE	ClearBridge Dividend Strategy ESG ETF	0.59%	$4.09
ICAN	SerenityShares IMPACT ETF	0.50%	$4.08
CHGX	Change Finance Diversified Impact U.S. Large Cap Fossil Fuel Free ETF	0.75%	$3.79

Source: ETF.com, FactSet. Data as of March 2, 2018

 

Some ESG funds screen out only "controversial" or "unconventional" weapons, a descriptor that varies from issuer to issuer, but that usually refers to bioweapons, land mines and other munitions banned by the Geneva Conventions and other international accords. One such example is the $66 million FlexShares STOXX Global ESG Impact Index Fund (ESGG).

Other funds drill down deeper, splitting the universe of stocks into military weaponry and civilian firearms. For example, the largest ESG ETF, the $985 million iShares MSCI KLD 400 Social ETF (DSI), screens out both military weapons and civilian firearms makers.

Still other ETFs take a "zero tolerance" policy. One example is the $3.8 million Change Finance Diversified Impact U.S. Large Cap Fossil Fuel Free ETF (CHGX), which aggressively screens gun stocks, culling not only weapons manufacturers and retailers, but also firms that supply components to manufacturers, and military software and services contractors.