- In recent months, an American Funds mutual fund has become the largest single owner of Smith & Wesson corporate parent American Outdoor Brands.
- The investment comes at a time of rising gun violence, including the recent mass shootings in El Paso, Texas, and Dayton, Ohio.
- BlackRock, the world's largest asset management firm, has received criticism for its ownership of gun stocks.
Mass shootings and the growing wave of socially responsible investing doesn't seem to be influencing behavior at one of the nation's largest mutual fund companies. In the past few months, American Funds' Smallcap World Fund, which is managed by investing giant Capital Group, has spent at least $17.3 million buying up shares of one of the nation's largest gun manufacturers. The investment, 2.1 million shares as of the end of June, has made the SmallCap World Fund the largest single investor in American Outdoor Brands, which up until 2017 was known as Smith & Wesson.
SmallCap World Fund, which has $45 billion in assets, bought the shares sometime in the second quarter. That was before Gun Violence Archive, and so far this year the number of mass shootings across the U.S. has in 2019 to date., which have raised new concerns about the epidemic of gun violence in America, but after the shootings in Parkland, Las Vegas and elsewhere. Nearly 15,000 Americans died last year from firearms, according to the website
It appears to be American Fund's Smallcap World's first investment in the company. A spokeswoman for American Funds confirmed that SmallCap World still owns shares in the gun maker, but wouldn't say if the fund's position had changed in the past week since the latest mass shootings, or why it recently decided to invest in the company. The Securities and Exchange Commission only requires funds to disclose their holdings every three months.
Los Angeles-based Capital Group is far from the only major name in finance that has invested in or does business with gun manufacturers. Fund companies BlackRock and Vanguard both have numerous funds with stakes in American Outdoor Brands, as well as its rival Sturm Ruger & Co.
But the Capital Group investment comes as number of large banks have said they will stop doing business with gun makers. Citigroup no longer processes gun purchases unless the buyer is 21 and has passed a background check, for instance.
What's more, Capital Group's investment is through an actively managed fund whose stock picks are made by investment managers. BlackRock's gun investments are not new and are through its passively managed funds, in which the holdings are determined by the index the fund tracks, not BlackRock.
In the past few years, a number of social activists have bought a small amount of shares in gun companies to try to force the companies to do more to thwart gun violence. But neither American Funds, nor owner Capital Group, have much of a history of social shareholder activism.
Despite the investments, American Funds says on its website that it considers "all material factors in assessing the merits of an investment, including considerations like human rights issues." It also says those issues are an important factor in its investment analysis.
Yet American Funds, unlike many large mutual fund companies these days, does not offer any so-called "socially responsible" funds. Two of its largest funds, American Mutual Fund and Washington Mutual Investors Fund, have had policies since the 1950s that prohibit investments in alcohol or tobacco companies. None of the company's funds specifically exclude gun stocks.
Even putting aside social issues, it's hard to make the case that American Outdoor Brands is a good investment right now. Sales are down nearly a third from two years ago, and profits have fallen by 85%. Yet, the company's stock price, at around $8.50 a share, trades at a price-to-earnings ratio of just over 26, a multiple of earnings that is usually reserved for companies that are seeing their bottom lines growing, not collapsing. Add to that talk of new gun regulations, and legal liabilities, and it would seem that this would be a poor time to be getting into gun stocks.
Weapon Free Funds, a website that tracks mutual fund investments, rates American Funds' SmallCap World as a high risk for investors who don't want to invest in weapons. The website says the fund has $565 million invested in weapons companies, not including the investment in American Outdoor Brands, which does not appear to be included in the website's database.
BlackRock, too, has faced some criticism for offering funds that invest in gun manufacturers, especially after CEO Larry Fink in early 2018 wrote an open letter to other CEOs warning that his firm, the world's largest asset manager, would only support companies that make positive contributions to society.
A year and a half later, BlackRock, through numerous ETFs, is the largest holder of gun stocks. Following the Parkland shooting, BlackRock said it would engage with the gun manufactures on ways they can make their products more safe.
But it's not clear BlackRock has made much progress. Last year, it voted for a shareholder proposal that forced American Outdoor Brands to write a report detailing its gun safety efforts and the research it is doing to make guns safer. But unlike other investors, BlackRock voted all of its shares in favor of re-electing the company's existing board of directors.
This year, a shareholder resolution to be voted on at the company's annual meeting from the same group, the Interfaith Center on Corporate Responsibility, is calling on American Outdoor Brands to produce greater details on the potential legal liability of its product. The company in a filing called on shareholders to reject the proposal.
BlackRock has not said how it plans to vote, and did not return CBS Moneywatch's request for comment for this story. American Outdoor Brands' annual shareholder meeting is expected to take place next month.