Guns and Money: The Search for No-Loaded Funds
Maybe you don't own a gun -- the lock or the barrel. But the stock; chances are pretty good you own gun stock. A new social media campaign, “Unload Your 401(k),” urges savers to look up fund providers on its web site to see if their plan’s funds own gunmakers like Sturm Ruger & Co. Inc. (RGR), Smith & Wesson Holding Corp. (SWHC) or Olin Corp. (OLN).
It’s part of a broader effort by the nonprofit coalition Campaign to Unload to get investment firms to divest from gun companies, in the same vein as activists who target oil companies, military contractors or a host of so-called sin stocks. And when you go to the website, you’ll find that all the major 401(k) plan administrators -- Vanguard Group, Fidelity, JPMorgan and others -- have funds with exposure to gunmakers. Vanguard, because of its massive index fund lineup, is among the top four holders of each company, and is the largest holder of Smith & Wesson.
Trying to disarm your portfolio isn't easy.
Gunmakers likely made their way into your portfolio through low-cost index funds, which have become far more prevalent in retirement plans over the last couple decades. The advantage of index funds is that you save lots of money in fees by not paying for an active fund manager, while getting returns that are on average significantly better.
But index funds like the Vanguard Total Stock Market Index Fund (VTSMX) buy everything in a particular market segment. That’s the whole point. So in Vanguard’s 3,700-stock fund you’ll find gun makers, defense contractors, oil companies and even an adult entertainment chain.
One option for those who don’t want exposure to gunmakers is to switch to a socially responsible fund. But, at least according to a Mercer survey, just 14 percent of defined-contribution retirement plans offered such an option in 2011 (the firm’s most recent numbers). There’s some logic to this, too: Retirement plans have also found that too many fund options overwhelm employees.
Or, the gun-averse could take drastic measures and switch out of any fund in their retirement plan that owns small- or mid-cap stocks. All three gun companies are relatively small, and aren’t included in the large-cap S&P 500 index. By buying an S&P 500 fund, they won’t own a gunmaker, though they’ll still get their share of defense companies, whose guns can be sizably larger. And smaller stocks have tended to do better over time, so you may be shooting yourself in the foot.
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- Steve Schwarzman's Fuzzy Math on Alternative Investing
- Why Rich People Feel Poor
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