First it was tobacco. Then fossil fuels. Now guns have become a target on Wall Street.
But despite the outcry over the Feb. 14 school shooting in Florida, most ordinary investors seem unwilling to put their money where their outrage is. Since 17 people were gunned down in America’s latest mass killing, just $82 million of the $22 billion that’s flowed to exchange-traded funds went to the 50 or so products that put money to work in accordance with environmental, social and governance principles -- like screening out gun stocks.
To put that figure in context, that’s less than these funds absorbed in the week immediately preceding the atrocity, according to data compiled by Bloomberg. In all, they sit atop less than 0.2 percent of the U.S. ETF industry that’s approaching $3.6 trillion.
The data are a sobering reminder about how, for all the clamoring for Wall Street to take on a bigger role as moral arbiter, ordinary investors just don’t seem to vote with their portfolios. And while it’s the asset management behemoths like BlackRock Inc. and Vanguard Group, whose mutual and exchange-traded funds make them the largest stakeholders in the firearm manufacturers that bear the brunt of public criticism, investors don’t need the fund companies to take action for them.
“Investors have many choices now to make a positive impact on society and to align their investment with their personal values,” said Linda Zhang, chief executive of Purview Investments, which offers an actively managed ESG ETF portfolio. “The time is really to act now, there are no excuses not to if you strongly believe in these principles.”
So what’s going on?
Cost Analysis
ESG fund management fees start at 0.12 percent and go up to 0.95 percent, significantly more than the 0.2 percent an investor can pay for a Russell 2000 ETF that includes three gun companies. The median for the socially responsible funds is 0.45 percent.
There’s a tax hit associated with selling out of one fund and buying into another, discouraging capital reallocation from a gun holder to an ESG ETF. And there’s a perception (and, often, a reality) that if ETFs remove gunmakers and other companies from the so-called sin industries, their performance will suffer.
Take BlackRock’s MSCI KLD 400 Social ETF, which tracks a measure that explicitly avoids companies involved in “civilian firearms.” It’s returned an average 10 percent over the last three years, lagging the S&P 500 Index by almost a percentage point. Shorter-term, the performance is better. Over one year, the gap narrows to a few basis points and the fund beat its benchmark for its broader universe.