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Zeroing In On Gun Stock Exposure In ETFs

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The tragic school shooting in Uvalde, Texas this week reopened the contentious debate on gun reform in America, sending shares of gun-makers higher following the event, in anticipation of stricter gun laws.

From a broader market perspective, gun manufacturers are tiny. The two largest pure-play manufacturers—Smith & Wesson Brands Inc. (SWBI) and Sturm, Ruger & Company Inc. (RGR)—have market caps close to $1 billion, hardly enough to influence any ETF.

Likewise, Vista Outdoor Inc. (VSTO), parent company of 39 sporting and outdoor brands, including gun-maker Remington, is only valued at around $2 billion.

You’ll find these stocks primarily in small cap ETFs. Funds like the Invesco S&P SmallCap Consumer Discretionary ETF (PSCD) and the Roundhill Acquirers Deep Value ETF (DEEP) have a couple percentage of their portfolios in either one or more of those stocks. (Use the ETF.com stock finder tool to search for ETF allocations to specific stocks).

Regardless of which funds you look at, gun-makers aren’t going to move the needle on them, so you wouldn’t buy an ETF even if you were a gun bull or looking for exposure to gun stocks.

But knowing which ETFs own gun stocks could still be important to you if you want to avoid investing in those companies. You’re never going to see stocks of gun manufacturers in large cap ETFs like the SPDR S&P 500 ETF Trust (SPY) because they’re too small.

You might, however, see shares of companies that sell firearms, like Walmart Inc., in those ETFs. For investors who want to completely remove gun exposure from their portfolios, they can look toward environmental, social and governance (ESG) ETFs.

Most ESG ETFs screen out firearm manufacturers and firearm retailers. For instance, the two largest U.S.-listed ESG ETFs, the $22 billion iShares ESG Aware MSCI USA ETF (ESGU) and the $7 billion iShares ESG Aware MSCI EAFE ETF (ESGD) preclude all companies classified as producers of civilian firearms and all companies classified as retailers of civilian firearms—the latter of which is defined as those “that earn 5% or more in revenue, or more than $20 million in revenue, from civilian firearms-related products.” 
For a full list of ESG ETFs, see ETF.com’s “socially responsible ETF” channel.


Follow Sumit on Twitter @sumitroy2

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