Investing April 24, 2018

Teachers’ Group Issues Report About Gun Manufacturer Investments

The report creates a watch list of investment managers that invest millions of dollars in companies that make assault weapons.

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The American Federation of Teachers (AFT) released a special edition of its “Ranking Asset Managers” report, which creates a watch list of investment managers that invest millions of dollars in companies that make assault weapons.

“Educators, parents and students need safe and welcoming schools, and educators have a right to assume their deferred wages are not being invested in the companies that make the military-style assault weapons used to injure and kill them and their students in countless school shootings,” says AFT President Randi Weingarten. “When companies produce a dangerous product that creates a national public health and safety crisis, that company becomes a high-risk investment and people have the right to know. This report is about exposing that risk and providing pension trustees and investment managers with the tools they need to demand meaningful action.”

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The report highlights actions several pension funds have taken to reduce their risk exposure. It also calls on all investors to “use their power to compel those gun manufacturers to take meaningful action to address these risks.” It creates a list of specific steps pension funds and financial institutions can take to mitigate their risks, including signing a gun safety code of conduct and limiting—or putting stricter stipulations on—their relationships with gun manufacturers.

The report identifies asset managers and several states’ public pension systems as institutions that have all taken steps toward this goal, and it names other financial institutions and public pension systems that have not yet acted in response to the gun violence epidemic.

In March, a bill was filed with the Massachusetts Legislature that would require the state’s public pension fund to divest from companies that manufacture guns and ammunition. In April, BlackRock issued a statement about its approach to firearm manufacturers.

The AFT report is here. It is being sent to pension plan trustees.
Investing April 24, 2018

ETF Investment Flourishes in Institutional Market

A new ETF market analysis from Greenwich Associates shows institutions continue relying on ETFs as “a liquid, fast and relatively low-cost tool in a wide range of tactical tasks,” such as managing cash flows and making nimble changes to their portfolios.

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The Greenwich Associates 2018 U.S. ETF Study highlights increased use of exchange-traded funds (ETFs) alongside the shift to a rising interest-rate environment and increased equity market volatility.

Some 180 institutions participated in the 2018 edition of the ETF Study. This group increased their use of ETFs in 20 of the 21 equity and fixed-income product categories covered in the research. 

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“As they ready their portfolios for the end of the Goldilocks market, U.S. institutions are integrating ETFs more deeply into their portfolio management and investment strategies,” says Andrew McCollum, Greenwich Associates managing director. “Driving this expansion is ETF versatility. ETFs are being adopted in portfolios alongside, and in some cases in place of, individual stocks and bonds, mutual funds and derivatives as a source of primary beta exposures for use in a wide variety of active and passive investment strategies.”

According to Greenwich Associates, institutional investors are making greater use of ETFs in “strategic portfolio functions.”

“They are using ETFs to obtain investment exposures in core portfolio allocations, and as building blocks in top-down strategies that create alpha through asset allocation, as opposed to security selection,” the analysis states. “They are also employing ETFs to guard portfolios against volatility—a task growing numbers of institutions are addressing with smart beta ETFs.”

Data in the report shows the share of study participants investing in non-market-cap-weighted/smart beta ETFs increased to 44% in 2017, up from 37% in 2016.

“Meanwhile, institutions continue relying on ETFs as a liquid, fast and relatively low-cost tool in a wide range of tactical tasks, such as managing cash flows and making tactical changes to their portfolios,” Greenwich Associates reports.

Overall, about a third of current ETF users in the study plan to increase allocations to the funds in the coming year, and significant shares of non-users say they are likely to start investing in ETFs in the next 12 months.

“Institutions are planning the biggest allocation increases in fixed income, where they are using the funds to enhance liquidity and otherwise prepare for a new era of quantitative tightening,” McCollum concludes. “These results point to continued growth in institutional ETF investment in the remainder of 2018 and into 2019. That growth could actually accelerate if continued increases in volatility place a premium on ETF features, including enhanced liquidity, operational efficiency and lower costs.”

Additional findings and other research reports are available at https://www.greenwich.com/. 

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