This is not the forum for debating the awfulness of last week’s terror attacks in Paris and Lebanon. But the fact that the event was so close to home may prompt renewed questions from investors about how to avoid unwittingly funding the increasing trade in arms and weapons.
With research from Triodos showing two-fifths of investors would divest their funds or pensions from the arms and weapons sector if they realised they had been supporting it, it is clear it this sector remains contentious, irrespective of any growing terrorism threat.
Indeed, while ‘sin stocks’ such as tobacco, alcohol and gambling can sometimes be seen as a ‘safe harbour’ in times of economic difficulty, investing in arms and weapons requires a little more detachment.
However, some investors have been and may continue to be swung by the potential upside. Between 1991 and 2013, the Dow Jones Aerospace & Defence index, covering defence stocks such as Lockheed Martin and General Dynamics, produced a 12.71% annual return.
In contrast, the less mature sustainable investing market, tracked by the MSCI World ESG index dating back to 2008, has delivered an average annual return of 6.87% (although 2008 was an especially bad year, it rises to 14.72% annually without this year).
Justifiable then? The chief executive of a new US investment vehicle, Freedom Capital, said to the FT in October: ‘Investing in oil and coal and weapons “isn’t an evil or irresponsible thing to do. Where would we be if we didn’t do it?”
If you’ve come here, you probably disagree. Indeed, while the fund management industry can disagree on all other types of ethics, it is rare to find a retail or pension fund with arms holdings in the UK – it seems to be one thing we all agree we would rather not fund. But that’s not a given, and where returns are, money sometimes chokes back its tears and follows.
Given that Triodos’ research also revealed 85% of UK investors would act if they felt their investments conflicted with their personal ethical preferences, we’ve listed below some stock / fund names to look out for if you are checking the top ten holdings of your stocks and shares ISA or pension.
Along with the two firms mentioned above, some of the most popular defence holdings are:
- Northrop Grumman, which builds bombers and drones
- United Technologies
- BAE Systems – most infamously held by the Comic Relief investment fund
- Safran
- Maggot
- Cobham
- Precision Castparts
- Raytheon
- Thales
- Zodiaz Aerospace
- Finmeccania
- Korea Aerospace Industries
And you may be surprised to learn that in 2013, UK defence company Cobham was even included in the FTSE4Good index. Yes, that’s good in the loosest sense then.
If you find any of these stocks in an old fund, don’t be afraid to speak up – or abandon ship. Fund managers need to know you care about such matters and while they might not admit it readily, it is not so hard for them to change their allocations. And if you aren’t sure, always ask too. There are no rules on the transparency of holdings in the fund management sector, although there is best practice, and it’s time we all shamed those who are more closed about where our money goes into coming out into the daylight.
