Banking on Big Tobacco

Fund managers like Vanguard, Fidelity pour billions into tobacco stocks

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Tobacco kills or disables millions of the people who use it. So it shouldn’t be surprising that some people want to take a moral stand by divesting from Big Tobacco. They’re refusing to personally profit from corporations contributing to a public health crisis.

Tobacco free investing has been around for a while. But Big Tobacco stocks like Phillip MorrisAltria Group, and British American Tobacco are still widespread in popular mutual funds and ETFs— the kind likely to be found in 401ks, IRAs, and similar retirement plans.

If a firm like Vanguard or Fidelity manages your savings, it’s likely you’re invested in tobacco. More than two-thirds of the assets in U.S. equity and balanced mutual funds are in portfolios that own tobacco.

How do the biggest fund managers stack up? We looked inside thousands of portfolios and ranked 20 major fund managers on their exposure to tobacco.

 The chart above tracks direct stock investments in tobacco companies, displayed as a percentage of total fund assets, by all equity and balanced funds offered by the top 20 U.S. equity fund managers. The firms had as low as 0% and as high as 2.89% invested in tobacco sector stocks.  See the chart data >>

The chart above tracks direct stock investments in tobacco companies, displayed as a percentage of total fund assets, by all equity and balanced funds offered by the top 20 U.S. equity fund managers. The firms had as low as 0% and as high as 2.89% invested in tobacco sector stocks. See the chart data >>

Dodge & Cox: Dodging tobacco investments

Dodge & Cox has four equity and balanced funds (DODGX, DODFX, DODBX, and DODWX) with $150 Billion in combined assets. All four funds had no direct investments in tobacco stocks.

Interestingly, when we previously looked at the same set of managers for climate-related holdings, Dodge & Cox has also been ahead of the pack. Dodge & Cox was alone in having no direct stock investments in the Macroclimate 50 list of coal-fired utilities. It was also one of only two managers with more money in Clean200 green energy companies than Carbon Underground 200 carbon reserve owners.

American Funds: Smokiest savings

Of the 20 major fund managers we looked at, American Funds had the most tobacco exposure. American Funds has 18 equity and balanced funds with $1.2 Trillion in combined assets — and 2.9% of that money is directly invested in tobacco stocks.

Less than three percent may not sound that high, but it’s more than two and a half times higher than the average for these 20 managers. Only three out of 18 American Funds portfolios were tobacco free.

Among those three is the $90 billion American Funds Washington Mutual Investors Fund, one of the largest socially responsible mutual funds to explicitly avoid tobacco investments. While American Funds earns accolades for this large tobacco free offering, it seems the rest of their funds don’t follow the same standards.

Vanguard: Billions invested in tobacco

Vanguard is the largest mutual fund manager in the U.S., with nearly three trillion dollars managed across 91 stock and balanced portfolios. Even with just one percent of those assets invested in tobacco, that’s more than $30 billion in tobacco investments managed by one firm.

While Vanguard does offer 32 funds with no tobacco holdings, there is only one socially responsible Vanguard offering, the Vanguard FTSE Social Index Fund, which is diversified and tobacco free.

Tobacco Free Funds

If you want to know whether your savings are funding Big Tobacco, we built a free online tool to help. With Tobacco Free Funds, it’s easy to look up funds, see if they own tobacco, and find alternative options.

The tool also supports an effort by 17 leading health and medical groupscalling on Hollywood to take action to stop youth smoking. If current trends continue, 5.6 million youths who are alive today are projected to die from tobacco-related diseases. Meanwhile, research shows that watching smoking in movies and television causes kids to smoke.

Yet just like Wall Street puts your money into tobacco stocks whether you like it or not, Hollywood keeps putting smoking in G, PG, and PG-13 rated movies.

We wrote an investor letter, endorsed by socially responsible investors managing over $64 billion in assets, asking the heads of major entertainment corporations to do the right thing for public health and take smoking out of youth-rated films.

When you look up funds on Tobacco Free Funds, you’ll see any tobacco investments, and you’ll also see if you own these entertainment companies. If you do, that means you’re an owner of that company. You may not be a big owner, but you have a say in how the company is run, and we invite you to sign our letter and call on Hollywood to rate smoking R.

The takeaway: Hollywood should stop promoting smoking to kids, and mutual fund managers should offer more options for people who want to avoid morally questionable industries like tobacco.

“Big Tobacco is trying to get our kids hooked early and Hollywood is helping them succeed.” 
- Nancy Brown, CEO, American Heart Association
                                                          Image credit:  Huffington Post

                                                         Image credit: Huffington Post

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Methodology

We source fund holdings and company industry data from Morningstar. The universe of funds we examined was restricted to equity and balanced portfolios with at least 40% of assets in direct stock holdings, offered as open-end mutual funds or ETFs, and domiciled in the U.S. The data represents fund holdings delivered by Morningstar in September 2017, with over 90% of portfolios dated 2017–8–30 or later. Learn more at https://www.tobaccofreefunds.org/how-it-works/.

Want to see the carbon risk and fossil fuel exposure embedded in your portfolio?

Head over to Fossil Free Funds where you can see if your savings are invested in dirty energy sources, and find investment options that support a cleaner, greener future. Learn more at https://fossilfreefunds.org.

Disclaimer

Copyright © 2017 As You Sow. All rights reserved. As You Sow does not provide investment, financial planning, legal or tax advice. Read our full disclaimer at https://fossilfreefunds.org/disclaimer/.