STUMP » Articles » More on Divestment: Your Money? Go For It. Other People's Money? Be Careful. » 2 March 2018, 11:56

Where Stu & MP spout off about everything.

More on Divestment: Your Money? Go For It. Other People's Money? Be Careful.  


2 March 2018, 11:56

This is not financial advice. Just an indication that you can divest from gun stocks (or whatever) in your own investments.

Do you support gun control? Then take a closer look at your 401(k)

There are probably guns in your 401(k)

Even if you’ve never personally bought a share in Smith & Wesson AOBC, -1.19% there’s a good chance you’re invested in gun stocks, especially if you’re a “set it and forget it” investor with retirement accounts in passively managed index funds. The same goes for pensions — including the one for Florida teachers. Three of the publicly-traded gun companies — American Outdoor Brands, Sturm, Ruger RGR, +1.84% and Vista Outdoors VSTO, -1.47% — are in several major stock indexes. Vanguard is the largest institutional shareholder of American Outdoor Brands, the maker of the AR-15 assault rifle, and a 2016 analysis of 23,000 mutual funds by MSCI found that nearly three quarters “had some exposure to the weapons industry” and approximately half of those funds “had direct exposure to gun manufacturers.

So what can individual investors do?

If you have a financial adviser, talk to them to find out exactly where your money is invested. If you’re managing your own investment portfolio and want to see if you’re an unwitting gun company shareholder, be prepared to do some homework. “It’s harder if you’re on your own and don’t have a lot of time. It’s easier if you have an adviser,” said Adam Bernstein, lead analyst on sustainable investing at Gitterman Wealth Management, a New Jersey-based investment advisory firm that offers advice on sustainable investing to individuals and financial advisers.

If this is important to you, you should probably spend some time on mindfully doing this.

The “easy” way is to invest in ESG funds — which filter out “objectionable” investments, based on a variety of criteria. There are funds that exist around adhering to specific religious beliefs, for example.

I’m more of a vice fund gal, but I don’t care enough to go out of my way to allocate my funds that way. I just use broad-based indices. The costs are very low.


Great idea, right?

Chicago treasurer: Use city’s investment portfolio to fight climate change, promote social progress

As New York City sues oil companies and plans to dump investments in fossil fuel production, Chicago Treasurer Kurt Summers is pushing to go even further and use the $7 billion portfolio of the nation’s third-largest city to help fight climate change and promote social progress.

Summers is proposing to overhaul the city’s investment strategy to ensure taxpayer dollars are directed to financially sound companies that make it a priority to protect the environment, encourage gender and racial diversity, uphold labor standards and operate ethically.

Instead of just divesting from fossil fuel interests, Summers said, the city should phase out those investments and ensure the portfolio is carbon-neutral by 2020, meaning any money still tied up in oil and gas funds would be offset by investments in clean energy.

“We should be rewarding good behavior,” Summers said in an interview with the Tribune. “With the rapidly expanding use of analytics, we can promote change and avoid companies doing things that are harmful to consumers or to workers, things that ultimately put the city at risk.”

“Divestment is about taking money out of something,” said Arena, who acknowledged it will take time to educate colleagues and the public about the proposed social investment strategy. “It doesn’t address the question about where we want to go moving forward.”

If the proposal is adopted, Summers said, Chicago would be the largest city in the world to invest based on environmental, social and governance, or ESG, factors in addition to the traditional focus on financial returns.

What are these $7 billion in assets that Chicago has to spend? It can’t be the pensions, because Chicago pensions are much more than $7 billion.

Looking at the 2017Q4 investments earnings call, I see that it’s mainly fixed income stuff, of short duration — so these are assets intended to fund operations. Okay, that I can understand – taxes come in and payments go out, and they are not necessarily at the same timing.

So this is what I call the “milk money”. Most of this needs to be short-term (one year or less) “paper” – aka fixed income. This isn’t investing in stocks. The Investment Policy I see as of 1 March 2018 seem pretty standard to me, given what these funds are.

There is no business playing around like this. You are simply making the investment process more expensive by getting this picky. You care about credit worthiness. That’s it. This ain’t long-term investing. That’s the whole point.

Mark Glennon comments:Chicago Treasurer Wants To Play Social Justice Warrior With $7 Billion Of Taxpayer Money – Wirepoints Original

Chicago’s Treasurer Kurt Summers, wants authority to invest the $7 billion of taxpayer money he manages that way. Articles this week in the Wall Street Journal and Chicago Tribune have described his proposal. The full ordinance he wants the City Council to pass is linked here.

Chicago’s move would be particularly significant, says the Journal, because it would apply ESG investing across the entire portfolio. Seven billion dollars is a lot of money, and other governments that do some ESG investing usually make only a small allocation to it.

You’ll find plenty of debate about whether ESG investing means lower expected return on investment, but you shouldn’t need any study or expertise to see that it does. The answer is self-evident. Are you investing to maximize returns or not? Does ESG mean you invest differently than that or not? ESG has to mean sacrificing returns as the money manager’ sole goal or it has no meaning at all.

What does it even mean to begin with? The proposed Chicago ordinance would let the Treasurer select investments based on which companies “promote a better life for all of us.”

Huh? What social goals are the right and virtuous ones and who decides? The standard list includes things you’d expect like global warming, diversity and inequality, but nobody knows where it ends, so it just gets goofy. Evil investments, in they eye’s of some, have included, for example, those in Caterpillar. Why? Because they make bulldozers, and Israel sometimes uses their bulldozers to raze homes of Palestinians they’ve identified as terrorists.

And as for the Chicago Treasurer’s portfolio, it’s not even invested in stocks. It’s almost entirely fixed income — bonds. As the Journal article points out, “Bond investors are unable to use tools such as proxy votes that are available to stockholders who wish to express frustration with company management.”

Again, it’s supposed to be bonds, and short-term at that, because this money is supposed to be for current operational costs.

Another commentator: Illinois Is Going Broke, But The ESG Movement Is Here To “Help”

I wouldn’t say “but” — I would say “and”.

Don’t look now, but the so-called ESG movement is now coming to Chicago. As if the Windy City and State of Illinois didn’t already have enough problems to deal with, the Wall Street Journal reports that Chicago’s Treasurer, Kurt Simmons, who manages the city’s various pension funds, is now “seeking permission from the city council to use environmental, social and governance (ESG) factors to inform investment decisions.”

As I pointed out in early January, this approach to investing based on social issues rather than return on capital has worked so well in California and New York that it has played a significant role in pushing state and local retirement systems in those states to massive deficit situations. As the Chicago Tribune recently reported, Illinois’ “unfunded pension liability is growing faster than taxpayers’ ability to keep up. With about a quarter of general fund revenues going to the pension system, other priorities get crowded out.”

Yup, this is a great way to buy political points, but an awful way to conduct public finance.


So, what are the frou-frou universities with big buxx doing?

Telling you to mind you biz, because they’re minding theirs.

University Endowments Are Mostly Mum About Firearms Investments

Is your alma mater investing in guns? Chances are, you’ll never know.

While some politicians and teachers, including the Florida Education Association, have urged pension funds to drop gun makers’ shares from their portfolios after the shooting in Parkland, Florida, universities contacted about the issue generally declined to answer questions about whether they owned such stakes.

Endowments have fewer disclosure requirements than nearly any other type of institution. With few exceptions, they adhere to blanket policies of keeping their holdings under wraps.

Among a total of 42 universities contacted for this article, seven declined to say whether the endowments held gun-related investments. Four said they had no firearm holdings. Most did not respond. Of the schools contacted, only the University of California said it had divested from firearms makers, having acted after the 2012 Sandy Hook school shooting in Newtown, Connecticut. (California State Teachers’ Retirement System decided to exit some of its firearm stocks after Sandy Hook.)
Universities’ holdings have grown more complex over the years, as they have migrated toward picking investment managers and allocating their money by asset type, instead of choosing individual investments. Endowments can often say rightfully that they don’t track their individual holdings.
Notre Dame in Indiana, with $11.8 billion under management, said it adheres to guidelines from the U.S. Conference of Catholic Bishops, which asks members to avoid companies that “do harm.” The conference stops short of formal restrictions. The university declined to say whether it holds firearms investments, citing a policy of not commenting on its investments. Among the endowment’s largest donors, the Bill & Melinda Gates Foundation declined to comment.

These people are smart. They are not trying to achieve higher political office, but they need to simply make money for the purposes of their endowments.

You want to have a say in how money is invested when you donate to a university? Then create your own private fund and finance scholarships or whatever directly yourself.

Once you’ve donated the money, it’s in the hands of that organization, and if they’re building up an endowment, if they’re smart, they’re focused on making sure they don’t do anything stupid with their investments.


Where this starts to become absurd are items like this:

Raimondo Invested in Funds That Owned Gun Company Stocks While Treasurer

Governor Gina Raimondo is now making big noise about the need to further regulate the gun industry, but her track record has inconsistencies.

Then-General Treasurer Raimondo made a big announcement in 2012 about shifting to finance giant TIAA. “Our goal was to choose a provider whose priorities are low-cost and secure investment products, along with robust and dependable customer service,” Raimondo said. “We have accomplished that with the selection of TIAA-CREF.”

Today, Rhode Island continues to have holdings in TIAA. “The amount invested from RI’s Defined Contribution retirement plan into TIAA’s International Equity Index is approximately $4.5 mm. Less than 0.5% of the holdings in TIAA’s International Equity Index is invested with companies involved in manufacturing guns,” said Randall Rice, Deputy Director of Communications for General Treasurer Seth Magazine.

“The TIAA International Equity Index fund was one of the investment options offered when the Defined Contribution plan was implemented in 2012,” said Rice.


The New York Times reported on Monday that other states also have pension holdings via TIAA in gun companies. The Times reported:


Oh wait, the gun company ties is that the TIAA funds are broad-based index-based funds. That is, they are essentially invested in all sectors. Would it surprise you that the broad TIAA mutual funds have investments in: oil, booze, gambling, movies, music, and all sorts of things that various people complain about being sinful?

By the way, TIAA has ESG funds, with both equity and bond options. Their fees range from 46 bps to 166 bps.

TIAA Being Investigated

In November, Gretchen Morgenson, a top financial writer for then New York Times (and now the Wall Street Journal) joined GoLocal LIVE after her newspaper published her investigative piece that unveiled claims that financial giant TIAA was involved in improper financial practices took on new momentum.

Rhode Island’s Treasurer Seth Magaziner has nearly $700 million invested with TIAA.

Morgenson was first to report that, “New York’s attorney general has subpoenaed TIAA, the giant insurance company, and investment firm, seeking documents and information relating to its sales practices…”

Okay, this is starting to get into my day job. But I will just explain what these “improper financial practices” were.

TIAA’s own employee 401(k)s were invested in TIAA mutual funds.

That’s it.

By the way, this has affected me because I have a 401(k) with TIAA, and rolled over another 401(k) into my TIAA one when I left that job. Should I ever leave my current job, I’d probably roll over the 401(k) here into the TIAA one. I really like their business model, they have low fees for most of their funds, and they have the broad indices I prefer.

This is way overblown.

TIAA runs the defined contribution plans for many public universities, and even some K-12 teacher DC plans. That’s where all this money going into TIAA is coming from.


So here’s a link dump.

That’s it for me today.

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