BlackRock To Launch Gun Free ETFs

BlackRock Inc. (NYSE:BLK) , the world’s largest asset manager, mulls over brining about two exchange-traded funds that will eliminate civilian firearm makers and large sellers after the shooting at Marjory Stoneman Douglas High School in Parkland, FL.

Last week, the issuer said it will change the underlying index for its existing ESG ETFs to indexes that particularly forbid civilian firearms manufacturers and large retailers if they generate 5% or more in revenues, or more than $20 million annually, from civilian firearms-related products.

BlackRock also indicated that 95% of its passively managed funds did not have shares of gun stocks like American Outdoor Brands Corporation (NASDAQ:AOBC) , Sturm, Ruger & Company Inc. (NYSE:RGR) or Vista Outdoor Inc. (NYSE:VSTO) . Also,no BlackRock active mutual fund holds those gun stocks.

BlackRock also plans to launch two ETFs namely iShares MSCI USA Small-Cap ESG Optimized ETF ESML and iShares ESG US Aggregate Bond ETF. Both funds will bar the inclusion of large retailers and producers of civilian firearms. While the small-cap fund could make a debut soon, investors can expect a debut of the bond fund later this year (read: No Trump Bump for 'Bump Stocks': Time to Invest in ESG ETFs?).

Why the Exclusion of Gun Stocks?

In February, President Trump has ordered a ban on gun accessories known as “bump stocks” and the U.S. attorney general, has officially proposed regulations that would effectively put an embargo on bump stocks in late March. Notably, “a bump fire stock is attached to the end a rifle to turn the semi-automatic into a fully automatic firearm.”

In February, the National Rifle Association (NRA) also buttressed the review by saying “the NRA believes that devices designed to allow semi-automatic rifles to function like fully-automatic rifles should be subject to additional regulations.” However, the proposed regulators first need to be published in the Federal Register and then be subject to public comment before being accepted, per CNBC.com.

The President’s move came as an administrative measure following the mass shooting in Las Vegas. A gunman, with at least 12 rifles fitted with bump stocks, killed 58 and wounded many in Las Vegas last October. In December, the Department of Justice and the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) started reviewing whether bump stocks are legal. With this, Florida school shooting in March made the exclusion of gun stocks crucial.

Will the New ETFs See Success?

As much as 35% of U.S. stock mutual funds target makers or retailers of guns and ammunition, which translates into “more than $17 billion spread across more than 2,000 funds,” per a tally by a non-profit advocacy group called Goodbye Gun Stocks, quoted on cbsnews.com. But BlackRock’s intention to reduce its presence in this segment materially makes its products more ESG-sensitive.

Socially-responsible ETFs should get a real Trump bump from this ban order. Socially-responsible investing seeks to avoid damage or mischief by screening companies on environmental, social and governance fronts.

It excludes companies with a negative social or environmental impact, such as weapons, alcohol, tobacco and gambling. Additionally, companies with a good track of socially-responsible activities generally outperform over the long term (read: Guide to Socially Responsible ETFs).

BlackRock Solidifying ESG Presence

The launch of ETFs without gun stocks and fee cuts of two ETFs MSCI KLD 400 Social ETF (DU:DSI) and iShares MSCI USA ESG Select ETF SUSA strengthened BlackRock’s presence in the ESG space. Both ETFs will undergo a fee cut of 0.25% to 0.25%.

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