NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, August 15, 2016

The world’s biggest asset manager has a problem on its hands. A group of gadflies known as Gays Against Guns, which was formed after the mass shooting at a nightclub in Orlando, wants BlackRock to cut its ties to the firearms industry, as Jeff Green reported.

The fact that BlackRock is being singled out by this group — which says it’s “not afraid to shame and demonize” — highlights an interesting side effect from the blockbuster trend of passive index-based investing that helped turn BlackRock and Vanguard into behemoths. When your investment strategy is simply to buy the entire market, as reflected by a benchmark index, you end up buying it warts and all. (Regardless of what you personally consider the warts.)

BlackRock and Vanguard are the biggest shareholders of many stocks, and two of them just happen to be Sturm Ruger & Co. and  Smith & Wesson Holding. However, tinkering with the mutual funds and ETFs that religiously track Russell and other indexes would undoubtedly cause these companies more headaches than Gays Against Guns could ever create.