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Gun makers excluded in new ETFs from BlackRock

BlackRock, the world’s largest asset manager, plans to start two ETFs that will exclude civilian firearm makers and large sellers in the wake of the Florida high school shooting.

The iShares MSCI USA Small-Cap ESG Optimized ETF (ESGU), which will start trading on or about April 12, will track investment results of an index that is mostly made up of small-cap U.S. companies, the company said Thursday. BlackRock also filed an initial registration statement for the iShares ESG US Aggregate Bond ETF. Both ETFs will exclude producers and big retailers of civilian firearms.

The response by New York-based BlackRock comes after 17 people were killed at a Florida high school in February. The shooting has reignited the debate around gun control and background checks to prevent future tragedies.

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Blackrock Inc. signage is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, March 31, 2017. U.S. stocks were little changed on the final day of their best quarter in more than a year, as banks resumed their decline amid falling Treasury yields, offsetting gains in utility and real estate shares. Photographer: Michael Nagle/Bloomberg

Vanguard, the second biggest U.S. provider of ETFs, does not offer a gun-free ETF. The firm does have a mutual fund, Vanguard FTSE Social Index Fund (VFTSX), which excludes gun manufacturers, spokesman John Woerth wrote in an email.

“It remains to be seen how significant these firearm-free instruments grow in size,” Rommel T. Dionisio, managing director of equity research at Aegis Capital, says. “But given the recent rhetoric from various state pension funds to divest firearm companies from their portfolios, there could certainly be some selling pressure if these funds were to divest BlackRock’s existing funds in favor of these new instruments which contain no firearm-related stocks."

Stocks of publicly traded firearms companies, including American Outdoor Brands and Sturm Ruger, were little changed on the news.

BlackRock said in March that it opened discussions with gun makers and retailers to engage them on the steps they are taking to support the safe and responsible use of weapons. The firm is the biggest institutional owner of firearms stocks through its passive products.

The money manager is also offering certain pension and 401(k) plans that want to exclude firearms from employee retirement programs five strategies that will exclude these investments.

While outpacing the S&P 500, the price tag is higher — the average expense ratio is more than 1%.
March 21

For its existing ETFs that screen for environmental, social and governance factors, known as ESG, the company is making the criteria for underlying indexes more explicit to prevent holdings of civilian firearms manufacturers and large retailers of them. The combined assets of those funds is $2.2 billion.

BlackRock is also cutting fees on its two flagship ESG ETFs, iShares MSCI KLD 400 Social (DSI) and iShares MSCI USA ESG Select (SUSA), to 25 basis points from 50 basis points.

Bloomberg News