Employees check an Elbit Systems Ltd. Hermes 900 unmanned aerial vehicle (UAV) at the company's drone factory in Rehovot, Israel, on June 28, 2018.STRINGER/Reuters
Each of Canada’s Big Six banks has money tied to Israeli arms manufacturer Elbit Systems Ltd. through the banks’ wealth-management subsidiaries and clients. But the holdings of Bank of Nova Scotia, which has faced months of protests against the bank’s sponsored arts events over its Elbit stake, still dwarf all the others.
A Globe and Mail review of securities filings and investment fund performance using the S&P Capital IQ and Morningstar Direct platforms shows that Elbit’s reach into Canadian portfolios is far broader than previously publicized – holdings the banks say are related to index funds and client requests.
The review also confirms that Scotiabank subsidiary 1832 Asset Management LP has a stake in Elbit that is much deeper and more deliberate than its competitors – more than 60 times bigger than its nearest Canadian rival, despite several recent partial divestitures by 1832.
Elbit, which is Israel’s most prominent publicly traded weapons maker, has drawn scrutiny for its sales during the Israel-Hamas War. After the Oct. 7 Hamas attack on Israel that left more than 1,100 people dead and saw more than 200 others taken hostage, the death toll in Gaza has surpassed 40,000, according to the Palestinian Ministry of Health.
Elbit got US$1.17-billion, or 20 per cent, of its nearly US$6-billion in revenue in 2023 from Israel, according to S&P Global Market Intelligence.
The company’s role in the war has thrust Scotiabank into the spotlight because of the bank’s sponsorship of some of Canada’s biggest arts events and organizations. Hundreds of Canadian artists and authors have expressed concern about, and in some cases boycotted, large Scotiabank-sponsored events, including the Contact Photography Festival, Scotiabank Giller Prize for fiction and Hot Docs documentary festival.
The Globe’s findings illustrate the extensive reach of the arms industry into global finance owing to the nature of index funds and individual investors’ decisions to deliberately buy shares in weapons companies – investments that are increasingly at odds with the vocal and often progressive nature of the arts sector. Canada’s six biggest banks, for instance, also have subsidiaries that hold stakes in Lockheed Martin Corp. and General Dynamics Corp., two companies that the United Nations High Commissioner for Human Rights has asked to stop supplying arms to Israel.
The findings additionally suggest that pushback against Canada’s banks, which are often keen to sponsor the arts, is unlikely to subside any time soon. “Scotiabank’s particularly large stake in Elbit has made it a consistent target of agitation,” said Aliya Pabani, an organizer with the No Arms in the Arts campaign, which has spearheaded much of the protest. “But all banks should take this as a warning: Whether it’s Elbit Systems, Raytheon, Lockheed Martin or someone else’s logo on those missiles, we intend to make it untenable for banks to continue” supporting the Israeli military.
The Elbit stake held by Scotiabank’s 1832 was big enough in 2022 to merit disclosures in the company’s annual report, at 5.06 per cent, or roughly US$368-million that December. 1832 has since cut that stake to 1.4 per cent, or 641,673 shares worth US$131-million at Friday’s close.
Filings show that Bank of Montreal – which is a day-one sponsor of the Stratford Festival, a partner to Toronto and Montreal’s biggest symphonies, and provides US$200,000 annually to the Carol Shields Prize for Fiction – holds 10,182 Elbit shares, worth nearly US$2.1-million, through BMO Asset Management Corp.’s investors.
The shares are held by an exchange-traded fund that tracks an index, run by MSCI Inc., of stocks in 21 developed markets, BMO said in an e-mail. Such ETFs are traditionally required to match the holdings of the indexes they follow.
And a major funder of Canadian jazz festivals, Toronto-Dominion Bank, holds 8,839 shares in Elbit worth just more than US$1.8-million through TD Asset Management Inc. TD also said it holds those shares through a passive equity fund on behalf of clients.
The Globe identified three divisions of Royal Bank of Canada, another major Stratford sponsor, that had a combined nearly US$705,000 invested in Elbit, which the bank said were requested and are held by its clients. “As part of the duty we have to our clients to act on their behalf without bias or self-interest, we cannot preclude them from making these decisions,” RBC spokesperson Nathaniel Wallace said in an e-mail.
Subsidiaries of Canadian Imperial Bank of Commerce and National Bank of Canada identified by The Globe among Elbit’s shareholders held smaller stakes, at about US$502,000 and US$81,000, respectively. National Bank said its holdings are connected to an index fund and client requests.
None of the arts organizations named in this story responded to comment requests, except for organizers of the Shields Prize, who declined to comment.
Different groups affiliated with individual artistic disciplines have led the protests against some Scotiabank-sponsored arts organizations, and many of those groups are connected with the broader No Arms in the Arts campaign. As a measure of its success, Ms. Pabani, one of the organizers, pointed to comments Elbit chief executive Bezhalel Machlis made to an Israeli publication earlier this month, suggesting that “political pressures” prompted 1832 to sell its shares. Scotiabank denies that its decisions are connected to protest activity.
Elbit’s products include drones and artillery, and it has acknowledged in its financial reports that it’s received increased demand for its arms since the Israel-Hamas War began.
The global ethical investing activist group Eko has long raised concerns about Elbit, including 1832′s holdings. “Its recent partial divestment shows that public pressure works – but it’s not enough,” said campaign director Vicky Wyatt. “Anything short of full divestment keeps Scotiabank complicit in war crimes and on the wrong side of history.”
1832′s Elbit stake is largely the work of one man: portfolio manager David Fingold of the Dynamic Funds family. Scotiabank acquired Dynamic in 2011 from wealth manager Dundee Corp., where Mr. Fingold managed multiple funds.
Starting with 100,000 Elbit shares in late 2013, Mr. Fingold steadily built his holdings, according to data from S&P Global Market Intelligence. 1832′s stake topped out at 2.2-million shares at the end of 2021 across multiple funds and investment strategies, including some not managed by Mr. Fingold. The cuts Mr. Fingold made in the past three quarters were the first large divestitures since he began accumulating shares.
Scotiabank declined to comment specifically on Mr. Fingold’s reasons for selling Elbit shares over the past three quarters. Some of his motivation, however, may have been the opportunity to profit. According to the financial statements for the three funds that have held Elbit the longest, the value of the shares were up 74 per cent, 82 per cent and 98 per cent on Dec. 31 of last year versus their purchase prices.
Mr. Fingold has made Israeli stocks a key part of his investment strategy, holding companies such as Mizrahi Tefahot Bank Ltd., Sabra hummus maker Strauss Group Ltd. and real estate company Azrieli Group Ltd. The country accounts for between 11.5 per cent and 14 per cent of four funds he manages or co-manages.
Morningstar Direct data shows that only two other international or global equity funds in Canada, out of more than 900, had more than 5 per cent of their assets invested in Israeli stocks.
Scotiabank declined a request to interview Mr. Fingold. But in a July, 2019, interview with Israeli business publication Globes, Mr. Fingold said “Elbit is a good investment for the long term, and we went into it with good timing, in accordance with our projection that global defence spending would bottom in 2015.”
He added: “The fact that Israel is in a ‘dangerous neighborhood’ creates a need for Israel to be very creative in defence, and this industry will remain strong here.”
In a statement, Scotiabank spokesperson Maria Saros said 1832′s Elbit Systems holding represented less than 0.07 per cent of the assets the firm managed as of June 30, and that 1832′s portfolio managers have ownership positions in companies in more than 50 countries.
“Individual securities are held based on their investment merit and are not influenced by protest activity,” she said. Ms. Saros said the funds have a low correlation to major stock indexes and to many competing funds, which helps for portfolio diversification.
Editor’s note: This article has been updated to remove the word controversial, which could be taken incorrectly as a characterization of Elbit Systems as a company. As well, the number of Israeli casualties was added to a description of what has followed the Oct. 7 incursion.