A Thematic Investing Perspective on Firearms
When we develop our investment themes at Tematica Research, we look at the intersection of economics, demographics, psychographics and technologies, mixed in with regulatory mandates and other forces. Each of those factors has a varying level of influence on the equation at any given time and as we like to say, the landscape is constantly shifting.
Case in point, on February 6th, we posted a Thematic Signal about declining gun sales as the prospect of any type of gun control legislation had declined with the Republican party in control both the legislative and executive branches of government. Without that legislative pressure, the need for gun owners to purchase additional firearms “before it was too late” had eased off. After a record-breaking year in 2016 of checks made by the FBI’s National Instant Criminal Background Check System (a proxy for the number of gun sales), the number of checks in 2017 and into 2018 were in decline.
Well, the landscape shifted once again just 8 days later when a gunman opened fire at Marjory Stoneman Douglas High School in Parkland, Florida. That tragedy has brought the heated debate over gun control legislation back front and center. We’re not going to dig into the political components of arguments around gun control legislation and 2nd Amendment Rights — we have our personal views on the matter, but this is simply not the forum. Firearms, however, are a key component to one of our investing themes — Safety & Security — and we are keeping close tabs on these developments and the impact they could have on firearms manufacturers such as American Outdoor Brands (AOBC) and Sturm, Ruger (RGR). And of course, the impact goes even deeper when we consider ammunition makers such Olin (OLN) and retailers like Walmart (WMT), Dicks Sporting Goods (DKS) and Cabellas (CAB) that sell firearms.
Yesterday, February 22nd, an interesting development came to light in this category when CNBC made the following report:
The world’s largest asset manager says it plans to speak with gun makers after a wave of public outcry sparked by the Florida school shooting last week. BlackRock officials said they want to reach out to the companies “to understand their response” to the shootings.The firm indirectly owns shares in the companies through the many exchange-traded funds under BlackRock’s iShares umbrella. The funds track indexes such as the S&P 500 and various sector indexes as well.With BlackRock being by far the leader in the $3.4 trillion ETF space, with nearly $1.4 trillion under management, the firm theoretically could exert some pressure on the index providers to remove the gun makers from their listings. In total, the firm manages $6.28 trillion.
Read Full Article on CNBC: BlackRock to talk to gun makers over response to school shootings
There are several intricacies in the indexing world that would make it difficult for BlackRock to exert as much pressure as one might think. But when the world’s largest asset manager starts looking critically at a category, one could quickly deduce that the potential upside for firearms stocks is going to be limited in the near-term.
As we wrote about on February 6th, the tailwinds behind our Safety & Security investment theme are still blowing strong. The defensive posture we see everywhere from governments to corporations to personal security is by all accounts unfortunately here to stay. The repeated school shootings are only increasing the demand for video surveillance, monitoring and security systems. These new systems, all wifi enabled and easy to install, provide at the very least the feeling of security if not a deterrent to criminals attempting to enter a building. Such systems are a key component of both our Disruptive Technologies investment theme and the Safety & Security theme, and the reason why we are seeing several companies, several of which are part of our Tematica Investing Select List, are quickly moving into the space.
