Guns, jail and coffins are big stocks for this Virginia investor

[NEW YORK] The June sun had just come up last year when the final shot rang out. A Virginia business owner named Kent Hope murdered his wife, Carolyn, with a Ruger P90 pistol. Then he killed himself.

It's a three-mile drive from their house into a Richmond office park, past a patch of purple pansies and to the London Co of Virginia. No one manufactures more guns in the US than Sturm Ruger & Co, which made Hope's semiautomatic, and no one owns more of its stock than London. The US$11.2 billion investment adviser also has stakes in dozens of companies, including makers or sellers of bullets, missiles, prisons, cigarettes and caskets.

Stephen M Goddard, the firm's 54-year-old founder and managing director, doesn't let other people's disgust for the carnage caused by some of those products get in the way, according to colleagues who have worked with him.

"He's not going to discriminate just because it's guns and it happens to be socially unacceptable in some circles," said Bruce Gottwald, who went to the Virginia Military Institute with Mr Goddard, was an early London client and a former chairman of its biggest holding, chemicals maker NewMarket Corp.

"They let their emotions get involved. And Steve's not going to let that play a big role in his decision-making." Tyler Bradford, a spokesman for London, said Mr Goddard and the firm wouldn't comment.

The deaths of Carolyn and Kent Hope were two of 860 homicides and suicides in Virginia involving firearms that year. Guns killed 33,599 people in the US in 2014, according to the Centers for Disease Control and Prevention, about the same as the number of motor-vehicle deaths.

Mass shootings, including the deadliest in US history at Virginia Tech in 2007 and rampages this year at Charleston, South Carolina's Emanuel AME Church and an office holiday party in San Bernardino, California, have fueled debates over gun control and whether it's ethical to invest in companies that make weapons.

Richmond, Virginia's capital, has been struggling with gun deaths for decades. In 1997, it had the highest murder rate of any large American city. While the rate has dropped since then, hitting a two-decade low in 2008, it has ticked up in recent years and was among the 20 worst in the US in 2012, according to the most recent data available from the Federal Bureau of Investigation.

"We have to find new ways to address violence, especially with firearms," said Steve Drew, a Richmond deputy police chief.

SURGING STOCKS

Investing in guns has been good for London. Sturm Ruger's shares cost less than US$10 when London began buying in 2008 and are now approaching US$60. As of the end of September, London owned 12.7 per cent of the company's stock and was among the top dozen shareholders of revolver maker Smith & Wesson Holding Corp, whose stock jumped this month to an all-time high, gun retailer Cabela's Inc and ammunition producers Olin Corp and Vista Outdoor Inc.

About US$1.8 billion, or one-sixth of London's assets, was invested in companies connected to weapons, tobacco, jail or funerals as of September. Other holdings include mattress manufacturer Tempur Sealy International Inc and drugmaker Eli Lilly & Co.

Investors are paying attention. London's assets have quintupled over the past four years. The 21-year-old firm manages about US$16 million for St Louis County's pension fund. The California State Teachers' Retirement System, which said in 2013 it would divest from gun companies and sold about US$3 million of Sturm Ruger and Smith & Wesson shares, put London in a pool of eligible managers this year. It hasn't given money, according to Ricardo Duran, a spokesman for the second-biggest US public pension fund.

London helped manage US$38.2 million for the New York State Teachers' Retirement System until 2010, according to fund spokesman John Cardillo. Andre Agassi's education nonprofit was a client until 2011, owning US$190,000 of Cabela's shares and US$40,000 of Sturm Ruger stock, according to Francisco Aguilar, who works with the former tennis star.

'BURY 'EM'

Two of London's top holdings as of September make big weapons. General Dynamics Corp, its fourth-biggest, produces grenade launchers and Abrams tanks, and Orbital ATK Inc, the fifth, won a contract this year to support nuclear intercontinental ballistic missiles. Both are near all-time stock highs. London's cigarette investments Altria Group Inc. and Reynolds American Inc. are too.

Service Corp International, the largest funeral and cemetery business in the US, hit its high for the decade this year. At the end of September, even after selling 2.7 million shares, London was its sixth-biggest shareholder. Former London adviser Marshall Acuff particularly appreciates that investment.

"I had a theme called 'box 'em and bury 'em,'" Mr Acuff said. "It's a play on the aging of America and the end of life and all of that."

Even with stocks of gun companies surging, all seven of London's funds were down for the first three quarters, according to the firm's website. Four beat their benchmark indexes. A top holding that's struggling, Corrections Corp of America, one of the largest private-prison operators in the US, has dropped 28 percent this year.

Old Virginia Gottwald was running First Colony Life Insurance Co. in the 1990s when he put his schoolmate from 176-year-old VMI in charge of an equity portfolio and even helped pick London's name, he said. The Virginia Company of London, chartered in 1606, sent English settlers to what became Jamestown, where disease, debt and hunger created a fiasco for shareholders.

"Steve is an old-line Virginian, certainly in spirit," said Thomas Megson, a former London portfolio manager. "There is nothing nouveau about him." Virginia has long been a stop along what is known as the Iron Pipeline, a trade corridor used to run guns up from the South, where firearms laws are relatively lax. Only seven states supplied more of the guns traced and recovered by US law enforcement last year.

POPE'S CRITICISM

Investors are under pressure from some pastors, teachers and civil rights leaders to get rid of gun stocks. Pope Francis criticised weapons investors in a speech in June.

Private-equity firm Cerberus Capital Management said three years ago it would sell Freedom Group, maker of the Bushmaster rifle that Adam Lanza used in 2012 when he killed 20 children and six staff members at Sandy Hook Elementary School in Connecticut. The firm, which said at the time it was shocked by the shooting, couldn't find a buyer.

Sturm Ruger's headquarters in Southport, Connecticut, is a half-hour drive from the site of that massacre. The 66-year-old company made a quarter of the pistols in the US in 2013, according to federal data. Spokesmen for Sturm Ruger and Smith & Wesson didn't respond to e-mails.

In Henrico County, where the Hopes lived, police data show how firearms and violence are interwoven. Of 515 serious gun crimes committed from the beginning of 2013 through Dec. 14, including murder and robbery, 80 involved a gun made by Sturm Ruger and 75 by Smith & Wesson.

It has been more than a decade since Congress stopped the Bureau of Alcohol, Tobacco, Firearms and Explosives from releasing the names of companies that manufacture guns used in crimes. Sturm Ruger and Smith & Wesson made two of three guns most traced in criminal contexts in 1999, before the government stopped sharing the information.

BLUE LIGHTS

The Richmond Police Department declined to provide any information about gun makers from its own firearms analyses, saying it didn't want to target manufacturers, according to Drew, the deputy police chief.

Virginia's legislature, meeting in Richmond last year, stopped a measure to restrict gun ownership for people convicted of domestic abuse. That wouldn't have helped Carolyn Hope. Even though she filed a protective order against her husband in 2005, it was lifted soon after.

Carolyn, 50, worked for the county, and Kent, 53, was a general contractor. On June 28, 2014, they drove with their daughter Nikki to the Virginia shore, where they enjoyed Yorktown Beach and snapped photos. Then Nikki went to a party, spent the night at a friend's house and came home the next morning to police tape and flashing red and blue lights.

"I never would have expected him to use a gun for that," Nikki, a 19-year-old with a long chestnut ponytail, warm brown eyes and a nose ring, said this month as rain drizzled outside her beige clapboard home, next door to where her parents lived. She had never heard of the investment firm six minutes away. She grew up around guns, and her views about them have shifted a bit.

"If somebody comes in my house and they happen to have one, they leave it at the front door or they take it back to their car," she said. "I don't let anybody else have that opportunity in my house to do something stupid."

BLOOMBERG