The headlines are outrageous and heartbreaking. Seventeen dead in a Florida high school, victims of an angry young man with a powerful weapon in his hands.
This follows, of course, the mass attacks in Las Vegas, in Orlando and in Newtown, Conn. Never mind the estimated 96 guns deaths daily around the country, most of which don’t make the news at all. Suicides, murders and accidents — all due to misused guns.
That has many asking: What can I do about this problem? The simple answer is to vote your conscience and compel your elected legislators to take action, whatever direction you believe policymakers should go on gun control policy.
But tragedy also has investors asking: Am I complicit, by virtue of my own choices?
The short answer is probably yes. In today’s portfolios, weapons makers are pretty hard to avoid. About 35% of big U.S. investment funds hold shares of at least some gun manufacturers, and many also hold shares of sporting goods gun retailers.
Many millions of us unknowingly own these stocks via pension funds, 401(k) plans and personal IRAs. Even if you own the most plain vanilla of index funds, some of your gains almost certainly come from the gun trade, directly or indirectly.
Sure, there are money managers who allow you to do what’s called a “negative screen” for firms you don’t want to own. There are also socially conscious funds on the market, which do the screening for you.
Yet I don’t believe in socially conscious funds. We’ve considered it carefully at my firm, Rebalance, and have come to the conclusion that social screening is an extremely slippery slope.
Which companies should one exclude? It’s not enough to be “for” or “against” a given product, such as tobacco. Disney sells tobacco at some of its non-park shopping centers. Under a strict screen, you couldn’t own Disney.
Similar problems appear with any kind of clothing maker or retailer. Everyone deplores child labor. But how many companies can guarantee you a pristine production chain from foreign shores to your local shop? Extremely few.
All energy and car companies pollute at some level. Where do you draw the lines?
If you are for the environment, for human rights, against guns and so on, your money manager has to somehow determine which companies to exclude. Usually, there is such a big gray area that it can’t be done consistently. Trade-offs are everywhere.
As a result of all the extra vetting work, social funds often become expensive to own. Ultimately, the investor gains a clearer conscience, but perhaps at the cost of significantly lower long-term returns.
So we set about looking for a compromise, and we believe we’ve found a decent solution.
When our clients ask about social screening, we tell them that our investment policy is to own entire asset classes via index funds — no screening.
Yes, there surely will be a few companies of which they don’t approve. But as money managers we can calculate the percentage of overall returns that come from objectionable businesses.
The client, armed with this information, is then invited to use that excess return to contribute directly to non-profit causes that address the issues they deem problematic.
That way, you can turn a company’s profits against it in a very direct and high-impact way. Contribute to gun-control advocacy programs. Give to anti-smoking drives or cancer research. Help elect politicians who will work for the change you want to see.
Divestment is a reasonable approach. University students have long used it to force college endowments to cease profiting from, for instance, the former apartheid government in South Africa.
While that kind of high-profile protest makes news, one less shareholder among millions does not have the same power.
But a dollar turned back toward solving the world’s problems is a dollar going in a direction any conscientious investor can live with happily.