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BlackRock to offer ETFs excluding investments in gun makers

New York

BLACKROCK Inc, the world's largest asset manager, plans to start two exchange-traded funds (ETFs) that will exclude civilian firearm makers and large sellers in the wake of the Florida high school shooting.

The iShares MSCI USA Small-Cap ESG Optimized ETF, which will start trading on or about April 12, will track investment results of an index that is mostly made up of small-cap US companies, according to a company release Thursday. BlackRock also filed an initial registration statement for the iShares ESG US Aggregate Bond ETF. Both ETFs will exclude producers and big retailers of civilian firearms.

The response by New York-based BlackRock comes after 17 people were shot dead at a Florida high school in February. The shooting has reignited the debate around gun control and background checks to prevent future tragedies.

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Vanguard Group, the second biggest US provider of ETFs, does not offer a gun-free ETF. The firm does have a mutual fund, Vanguard FTSE Social Index Fund, which excludes gun manufacturers, spokesman John Woerth wrote in an email.

"It remains to be seen how significant these firearm-free instruments grow in size," said Rommel Dionisio, managing director of equity research at Aegis Capital Corp. "But given the recent rhetoric from various state pension funds to divest firearm companies from their portfolios, there could certainly be some selling pressure if these funds were to divest BlackRock's existing funds in favour of these new instruments which contain no firearm-related stocks."

Stocks of publicly-traded firearms companies, including American Outdoor Brands Corp and Sturm Ruger & Co, were little changed on the news.

BlackRock said in March that it opened discussions with gun makers and retailers to engage them on the steps they are taking to support the safe and responsible use of weapons. The firm is the biggest institutional owner of firearms stocks through its passive products.

The money manager is also offering certain pension and 401(k) plans that want to exclude firearms from employee retirement programmes with five strategies that will exclude these investments.

For its existing ETFs that screen for environmental, social and governance factors, known as ESG, the company is making the criteria for underlying indexes more explicit to prevent holdings of civilian firearm manufacturers and large retailers of them. The combined assets of those funds is US$2.2 billion.

BlackRock is also cutting fees on its two flagship ESG ETFs, iShares MSCI KLD 400 Social and iShares MSCI USA ESG Select, to 25 basis points from 50 basis points. BLOOMBERG

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