Investors pressure gun industry but there are limits

States are moving toward divesting their pension funds of gun stocks.

States like New Jersey are moving toward divesting their pension funds of gun stocks, a move that CalPERS (the California Public Retirement System) made in 2013 following the school shootings in Sandy Hook, Connecticut.

Since the Feb. 14 school massacre in Parkland, Florida, both retailers have stopped selling assault rifles and raised the age for gun purchases to 21. Even if investment companies feel pressure to eliminate any trace of guns from their offerings, it would be impossible to keep the stocks of major retailers selling them out of all index funds and ETFs.

Because they’re relatively small public companies, gun manufacturers could be viewed as easier financial targets than some past targets of SRI (socially responsible investing) movements—most notably, the tobacco industry. CalPERS got wound up about tobacco more than a decade ago, but didn’t end up fully divesting.

Pension funds have a different problem. They’re required to get the best returns for investors. Generally, the view in that industry is: If that means guns, then so be it. CalPERS, the largest public or private pension fund with more than $300 billion in assets under management, has the flexibility to snub guns because its size confers enough investment clout to open up many options. But most pension funds, especially private ones without the public policy accountability, don’t have this kind of flexibility.

It came out soon after the Parkland shooting that teacher pension funds in 12 states own stocks in gun manufacturers. These states include Florida and California (where teachers have a separate fund from other public employees). Doubtless, there will be at least some divestiture by these funds, but generally, anti-gun pressure on the financial services industry will have to be sustained to make a lasting difference on society and on the financial services industry. This would be a departure from past patterns of waning public and investor attention as the focus on mass shootings fades until the next one unfortunately occurs.

Dave Sheaff Gilreath is a founding principal of Sheaff Brock Investment Advisors LLC. He has more than 30 years of experience in the financial services industry. Neither he nor members of his family own shares of the companies listed above.

Any opinions expressed in this column are solely those of the author.