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March 15, 2001
Do You Own Big Tobacco Stock?
Some well-known conventional mutual funds and pensions funds own big chunks of America's largest
tobacco companies, Philip Morris and R.J. Reynolds.
SocialFunds.com --
Many socially responsible mutual funds define themselves by what sectors in which the funds will
not invest. Using exclusionary screens, researchers weed out companies involved in certain
businesses. Perhaps the most common sector excluded from social mutual funds is tobacco and
tobacco-related products.
 There seems to be some irony in the continued
public vilification of tobacco companies. While the settlement of some tobacco suits has resulted
in more than a few media campaigns to educate the public about the risks of smoking, large,
well-known mutual funds and institutional investors continue to pour money into tobacco-related
stocks.
Philip Morris (ticker: MO) and R.J. Reynolds (RJR) are the two
largest cigarette manufacturers in the U.S. and are a part of what Americans have come to know as
"big tobacco." Philip Morris and R.J. Reynolds combined market over 50 cigarette brands
domestically and internationally.
The mutual fund firm that seems to like big tobacco the
most is Fidelity Investments. Its flagship fund Fidelity
Magellan (FMAGX), a large-cap blend fund, is the second largest mutual fund in the U.S. in terms of
asset size. Among mutual funds it is Philip Morris's number two shareholder; with its 26.5 million
shares translating to a market value of over $1.2 billion dollars (all figures in this article for
shares owned, market value of shares and percent of portfolio are taken from reports dating between
7/31/00 and 12/31/00).
The Fidelity Independence Fund (FDFFX) is the largest holder of
R.J. Reynolds stock among mutual funds and the third largest of Philip Morris stock. The two
tobacco companies make up 22.66 percent of Independence's portfolio. Independence is a large-cap
fund that usually invests in growth but also invests in value.
Five other Fidelity funds
have positions in one of the companies. Fidelity Growth and Income (FGIOX), Fidelity Blue Chip
Growth (FBGRX), and Fidelity Fund (FFIDX) all have at least 1.8 percent of their portfolio in
Philip Morris. Fidelity Low-priced Stock (FLPSX) and Fidelity Advisor Dynamic Capital (FARAX) both
own R.J Reynolds, with Advisor Dynamic Capital devoting a relatively large 14.02 percent of its
portfolio to the company.
Fidelity Management and Research Co. distinguishes itself as the
largest institutional investor in both Philip Morris and R.J. Reynolds. It holds almost $8 billion
of Philip Morris stock, which occupies 1.63 percent of its portfolio. Its R.J. Reynolds stock
takes up 0.17 percent of its portfolio and has a market value of over $800 million.
American Funds Group also likes
big tobacco. Its Investment Company of America (AIVSX) fund has more Philip Morris stock than any
other fund; its 39 million shares have a total market value of $1.87 billion. Investment Company
of America is the fourth largest holder of R.J. Reynolds among other mutual funds, although the
stock occupies only 0.47 percent of its portfolio.
The Income Fund of America (AMECX) is
another American Funds Group product that owns stock in R.J. Reynolds. The 1.31 percent of its
portfolio makes it the third largest holder among mutual funds.
TIAA-CREF, the world's largest retirement system that manages
the pensions of many educators and researchers in the U.S., also invests in big tobacco. Its
College Retirement Equities-Stock fund owns almost a billion dollars of Philip Morris stock,
although the holdings make up only 0.86 percent of its portfolio.
As an institutional
investor, TIAA-CREF is the 12th largest shareholder of Philip Morris stock, with almost 1 percent
of its portfolio having a value of over $1 billion.
The New York State Common Retirement
Fund and the Texas Teacher Retirement System are fans of R.J. Reynolds, being the 14th and 15th
largest institutional investors. They both have devoted 0.9 percent of their portfolios to the
tobacco company, and both their holdings are valued over $40 million.
While smoking
continues to decline in America, many greedy investors are still addicted to tobacco profits. The
difference now is that those profits are increasingly coming from overseas. According to a 1998
Congressional Research Service report, the United States accounted for over 20 percent of all
cigarette exports, making it by far the largest cigarette exporting nation in the world. With huge
markets such as China and Russia as targets, odds are that big tobacco will keep people puffing in
large numbers for years to come.
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SRI World Group, Inc. All Rights Reserved.
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