Surge in gun industry success brings with it unwitting investors

Barack Obama might seem an unlikely investor in the firearms industry. But the president, a fierce advocate for gun regulation, has money in a pension fund that holds a tiny stake in gun and ammunition companies.

Although Obama's stake is minuscule, worth no more than $30, it reflects a much larger surge of investment in the industry - some it by unwitting investors.

The president is among millions of Americans buying into gun companies as mutual funds have increased such holdings to record levels, according to a Reuters analysis of institutional investment in firearms companies.

Since Obama took office in 2009, mutual funds have raised their stakes to about $510 million from $30 million in the two largest gun manufacturers with publicly traded shares, Smith & Wesson Corp and Sturm, Ruger & Co.

That means such stocks are now commonplace in retirement and college savings plans.

The influx helped to boost both companies' shares by more than 750 percent during the Obama presidency; each now has a market value of about $1 billion.

Beyond mutual funds, such investments are held in the portfolios of hedge funds and public pension plans, which are harder to track.

The White House declined to comment on Obama's holdings in the Illinois General Assembly's pension plan, which he earned while serving in that state's Senate.

Fund managers are drawn to the stocks by surging sales. Buyers are arming themselves, analysts said, in response to mass shootings and calls for more gun laws.

By the end of 2015, more than 150 mutual funds owned Smith & Wesson shares, up from 53 in 2008. Nearly 130 held stock in Ruger, up from 52, according to Morningstar Inc.

It would have taken investors 'minimal due diligence” to see massive profit potential in Ruger stock when Obama was first elected, said Ruger Chief Executive Mike Fifer. Shares hit a low of $4.50 right after that election; they're now at $61.61.

America's leading ammunition maker, Vista Outdoor Inc, has drawn investments from 319 funds in its first year of public trading and now has a market value of $2.9 billion. Its bonds are owned by a who's-who of U.S. investment and insurance companies.

Such investments can be hard to identify within large funds. Eric Milgram, a corporate research analyst whose two children were at Sandy Hook Elementary School in Connecticut during the 2012 massacre of 20 students and six staff members, tried to purge his portfolio of firearms holdings. But he gave up after a frustrating search of mutual fund, holding companies and subsidiaries.

'I'm disgusted with this industry; I don't want to be invested in it,” said Milgram. But 'there are only so many hours in the day.”

Vanguard Group, the nation's largest fund company, said it was unrealistic to balance political sensibilities with obligations to meet performance benchmarks.

Vanguard does, however, offer a Social Index fund - with about $2 billion in assets out of Vanguard's total of about $3.4 trillion - that excludes firearms companies.

Smith & Wesson declined to comment. Vista Outdoor did not respond to requests.

Obama's tiny stake is typical of most Americans with holdings in firearms investments: They are invested in funds that buy shares of the relatively small part of the firearms industry that is publicly traded. But collectively, the investments amount to a sizable stake.

In its analysis, Reuters used mutual fund holdings data from Morningstar and Lipper Inc, a Thomson Reuters company, to examine firearms investments during the Obama presidency.

The list of funds holding such stocks includes some of the biggest and most prominent, such as Vanguard and the second-largest fund group, Fidelity Investments. It extends to BlackRock Inc, and Dimensional Fund Advisors. The analysis used disclosures made by the funds.

Some of the gun stockholders are passively managed index funds. But many are actively managed, including Fidelity's $40 billion Low-Priced Stock Fund, which is Smith & Wesson's second-largest mutual fund investor.

Fidelity and Dimensional declined to comment. BlackRock does manage $200 billion of its total investment options that screen out certain stocks, including companies involved in firearms, tobacco and alcohol, said spokesman Peter McKillop.

Obama isn't the only gun-regulation advocate with gun-industry holdings.

Former U.S. Rep. Carolyn McCarthy, elected after her husband was killed in the 1993 Long Island Rail Road shooting, pushed relentlessly for gun legislation. While in office, she held shares worth between $3,003 and $45,000 in at least three exchange-traded funds with stakes in gun and ammo companies, according to financial disclosure before retiring last year. She also invested between $2,002 and $30,000 for two grandchildren in college-savings plans that include a Vanguard fund holding firearms stocks, disclosures show.

The New York Democrat could not be reached.

As a retirement benefit, lawyers can participate in a savings plan that offers an investment option with stock in firearms companies.

Financial disclosures show nestors include Sen. Dick Durbin of Illinois, the second-ranking Senate Democrat and advocate for stricter background checks for gun buyers. Durbin's office declined to comment.

But some welcome the investment option.

'I'm just grateful the fund managers are investing in something that's making money,” said Rep. Kevin Cramer, a North Dakota Republican who opposes gun restrictions.