Days after Adam Lanza used a Bushmaster AR-15 semiautomatic rifle to kill 20 first graders and six adults at the Sandy Hook elementary school in Newton, Connecticut, California’s Treasurer urged the state’s Teacher’s pension fund to sell its stake in Cerebus Capital Management which owns the Bushmaster manufacturer.
Cerebus subsequently announced it was selling Freedom Group, maker of the Bushmaster AR-15 and other guns.
Months earlier Commerzbank (CRZBY) removed agricultural products from a commodity index fund following accusations that speculation in commodity funds raised food prices and contributed to hunger crises around the world.
Both controversies illustrate the growing popularity of social investing.
“There’s no question that investors in all locations are really trying to put pressure on companies, asking 'how do you make money?” says Peter Atwater, president of Financial Insyghts and author of “Moods and Markets.”
This is not a new phenomenon. Socially responsible investing has been around for years.
In the 1950s and 1960s trade unions invested in health care facilities and real estate developments to benefit their workers. From the early 1970s until the early 1990s, pension funds and other stock investors around the world divested themselves of companies operating in South Africa under apartheid.
Atwater says the popularity of socially aware investing rises and falls along with the national mood. “As mood deteriorates people scrutinize things more and more,” Atwater tells The Daily Ticker.
During the financial crisis of 2008 there was “a real outcry” about short sellers, says Atwater. Today, Starbucks (SBUX) is criticized for how it avoids U.K. taxes and questions are raised about how Wal-Mart (WMT) sources goods in Pakistan, says Atwater. And, then there is Apple (AAPL) which has been criticized for working conditions at its Chinese manufacturing plants.
These developments are “a real indicator of the underlying weak social mood that exists in the country today," says Atwater.
So why then did U.S. stocks gain almost 12% last year? And why is the S&P 500 (^GSPC) currently trading near a 5-year high?
“What you’ve seen is ebullience in the markets based on nominal values but any measure of real values—the S&P denominated in gold--looks a whole lot more like the Gallup measures of confidence," says Atwater. "The indicators of confidence….are weak and have been weak for four years."
He adds that the polarization and dysfunction in Washington are contributing to waning confidence.
Atwater recommends investors “watch who is investing alongside you.”
Citing the gun controversy involving Cerebus, he warns, that those co-investors “may be impacted before you are as a retail investor.”
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