April 5, 2018 / 4:33 PM / 8 months ago

Breakingviews - Disarming move gives BlackRock one more weapon

A woman wears stickers in protest of gun violence before the "March for Our Lives", an organized demonstration to end gun violence, in downtown Houston, Texas, U.S., March 24, 2018. REUTERS/Loren Elliott

NEW YORK (Reuters Breakingviews) - BlackRock may have found a disarmingly simple solution to its gun dilemma. The fund manager led by Larry Fink will offer an arsenal of new products allowing individuals and institutions to invest in market indexes without putting money into manufacturers and retailers of firearms. Coupled with a plan to engage public gunmakers and sellers directly, it moves Fink closer to fulfilling a promise that BlackRock’s business benefit society alongside the bottom line.

Because it has over $6 trillion of client money to invest, much of it in products that follow stock- and bond-market indexes, BlackRock is de facto among the top owners of nearly every public company. That includes American Outdoor Brands, maker of the Smith & Wesson AR-15 assault-style rifle used to murder 17 high school students and their teachers in Parkland, Florida in February. And that put Fink, who has urged companies to serve a social purpose, in an uncomfortable position at a time of mass demonstrations and consumer boycotts over gun violence.

On Thursday, his firm unveiled a range of new index products that will enable investors to withhold their support for ironmongers. They include a new exchange-traded fund that will track the performance of the MSCI USA Small Cap Extended ESG Focus Index, composed of small stocks with favorable environmental, social and governance standards, while specifically excluding producers and large retailers of civilian firearms. It will also offer a similar credit-focused ETF that eschews the debt of gunmakers and distributors.

Perhaps more significant, BlackRock will offer an option to take the guns out of institutional strategies tracking major market indexes, including the S&P 500, the Russell 2000 and three others. The reason: amid the debate over gun safety that the Parkland tragedy has unleashed, many pension funds and company 401(k) plans have been looking to disarm, largely in response to the demand of their own members.

BlackRock’s moves may spark criticism from gun-rights supporters, who lashed out at companies like Delta Air Lines that severed ties with the National Rifle Association. But it’s hard to see how offering customers more choice is ever a bad idea. Moreover, by getting out early, BlackRock makes clear to those young people lobbying for tighter gun laws – who it hopes will be customers for decades to come - that it has something for them. Far from virtue signaling, it’s simply good business.

Breakingviews

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