RBC Benefits After Boosting Stake in Surging Gunmaker

Royal Bank of Canada, the largest asset manager among the country’s lenders, benefited from a gain in Smith & Wesson Holding Corp.’s shares after increasing its stake in the U.S. gunmaker last quarter.

The company is the fourth-biggest investor in Springfield, Massachusetts-based Smith & Wesson, with a 4.6 percent stake, according to data compiled by Bloomberg. Royal Bank’s U.S. asset manager held 2.39 million shares of the second-largest publicly traded U.S. gun manufacturer as of March 31, according to a regulatory filing yesterday. That’s up from about 2.1 million shares at year-end.

Smith & Wesson’s three biggest shareholders are Fidelity Investments, Vanguard Group Inc. and BlackRock Inc., the data show.

Royal Bank is the only lender in Canada, a nation with a gun ownership rate about one-third that of the U.S., with significant equity investments in Smith & Wesson, mostly through its RBC Global Asset Management business. The Toronto-based bank also holds the shares in its RBC Capital Markets unit and RBC Dominion Securities brokerage, according to data compiled by Bloomberg.

“The majority of RBC Global Asset Management’s holdings of Smith & Wesson are in portfolios and funds available in the United States to U.S. investors,” Chris Dotson, a spokesman for the Toronto-based bank, said in a May 2 e-mail.

While the bank’s U.S. asset manager held most of the stock, four funds available to Canadian investors -- the PH&N U.S. Multi-Style All-Cap Equity, RBC Private O’Shaughnessy U.S. Growth Equity Pool, RBC O’Shaughnessy U.S. Growth Fund II and RBC U.S. Small-Cap Core Equity funds -- also owned shares at the end of March, according to Dotson.

‘Good Buy’

“Their asset-management business thinks it’s a good buy and that’s why they own it,” said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier Inc. in Toronto. “It’s done very well.”

Smith & Wesson, which raised its 2014 earnings forecast in March, climbed 12 percent this year and 3.7 percent since the end of the first quarter. The company has benefited from the national gun-control debate in the U.S., as enthusiasts stocked up ahead of potentially tighter laws. New products including the firm’s popular M&P pistols also have stoked demand.

The U.S. has the highest civilian gun ownership in the world with 89 firearms per 100 residents, according to the 2007 Small Arms Survey by the Geneva-based Graduate Institute of International & Development Studies. By comparison, Canada has 31 guns for every 100 residents.

Royal Bank’s corporate responsibility guidelines don’t bar investing in gun producers, though its PH&N Community Values and RBC Jantzi funds exclude investments in certain industries including arms manufacturers.

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