If you thought lumber prices were high in 2021 or that the US housing market was hot, you might be missing the hottest market and the industry that is seeing the highest price increases; the gun and ammunition industry. In 2020 the US saw record levels of gun purchases halfway through 2021, and there is no slowing down.
In 2020, more than 21 million guns were sold in the US; that’s more than double the number of guns sold 20 years ago. And according to the FBI background checks done thus far in 2021, we are likely to see more than 21 million guns sold this year.
With that many guns being sold, it's not hard to see why ammunition is not only in short supply but why prices are up more than 100% when compared to just two years ago. However, despite ammunition prices rising, some people being interviewed say they would buy more if they could get it. Some gun owners have said it's not uncommon to own thousands of rounds for each different type of gun they own.
So, when you add the two factors together, 21 million new guns sold in 2020, and we are well on our way to see close to, if not more than that, sold in 2021, and of course you need bullets for these millions of guns being sold, maybe not thousands, but at least some. Well then, it makes perfect sense why ammunition is in low supply, high demand, and prices are soaring.
As an investor, how can you benefit from this gun-crazy situation?
Well, it is not easy. See there are three main gun and ammunition manufacturers that you can invest in, Strum, Ruger & Co (RGR), American Outdoor Brands Corp. (AOBC), and Vista Outdoor, Inc. (VSTO), but few, just 5% of Exchange Traded Funds hold all three of these companies, and none hold them in large amounts.
From a percent of assets standpoint in ETFs, investors need to go with the highest allocation of assets in the gun companies, which can be found in the Pacer U.S. Small Cap Cash Cows 100 ETF (CALF), which has 2.62% of assets in VSTO and RGR combined. The next best is the iShares U.S. Aerospace & Defense ETF (ITA), which has 1.72% of assets in AOBC and RGR combined. The third is the Invesco S&P SmallCap Consumer Discretionary ETF (PSCD) which has 1.65% of assets in VSTO and RGR combined.
Another way to look at it would be from how much money an ETF has invested directly into the gun stocks, not how much the gun stocks are represented in the fund. So, with that in mind, the iShares Core S&P Small-Cap ETF (IJR) is the best ETF to buy since it has $104.83 million invested in VSTO and RGR combined. However, VSTO and RGR only make up 0.24% of the fund. Next would be the iShares U.S. Aerospace & Defense ETF, which has $102.57 million invested in AOBC and RGR combined. This is also the second-best fund when looking at how much gun stocks represent in terms of fund assets, at 1.72%. And finally, we have the iShares Russell 2000 ETF (IWM), which has $54.37 million invested in RGR, AOBC, and VSTO combined. The IWM is also the only ETF I have mentioned that holds all three big gun companies.
One reason, probably the main reason it is hard to find an ETF that is loaded with gun stocks, is because of socially responsible investing and how many investors don’t want to support the industry. This is especially true after a mass shooting occurs and big gun regulation hits the mainstream media outlets. (I do not agree with whether or not guns are good or bad or that backlash against the industry after a mass shooting occurs is good or bad, I am just trying to point out the reality of the situation.)
In my opinion, most of the “best” options for investors to invest in the gun stocks through ETFs really are not that great and truly don’t give you much exposure to the industry if that is your main goal. All of the ETFs mentioned above are good investments overall, but not if your goal is to get exposure to the gun industry during this time of overheated sales and a massive imbalance in supply and demand.
Honestly, if you really want exposure to this industry, your best option is to just buy stock in one or more of the three-gun companies and call it a day. But remember, the good times may not continue forever, and the next time the gun control debate hits the media, you may feel some pain.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor held long positions in Apple, Tesla, Intel, Google, Amazon.com, Facebook, Priceline and Microsoft at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
