New Advisors Spring up to Help Catholics Bridge Faith and Finance
Emily Carmichael — March 23, 2023
In November 2022, the Vatican released Mensuram Bonam – or Good Measures, in English. The document, years in the making, acknowledges the financial industry’s augmented influence on global stability and outlines how to bring God into industry practices. In the foreword, Cardinal Peter Kodwo Turkson, Chancellor of the Pontifical Academies of Sciences and of Social Sciences, quotes Pope Francis: “Purchasing is always a moral — and not simply an economic act.”
The quote is from Pope Francis’ speech on World Peace Day in 2015, condemning the slavery and human trafficking endemic in the twenty-first-century economy. Exactly these kinds of economic activities — and the prevention thereof — have been on the minds of modern investors, religious or not, as the emergence of the Socially Responsible Investing (SRI) and ESG movements bring values-based investing into the mainstream. Indeed, Cardinal Turkson calls SRI and ESG “important frameworks” in his foreword, and Mensuram Bonam mirrors some of the popular investment philosophies in its emphasis on stakeholders, human rights, and environmental responsibility.
“However, there is no investment algorithm for simulating human conscience,” Cardinal Turkson continues. For Catholics looking to invest the godly way, current socially minded investment paradigms do not suffice — and not just because of their stance on reproductive freedom. From activist nuns to personal financial advisors, Catholics are carving out their own path of faith-based investing.
For the roughly 23 percent of Americans identifying as Roman Catholic, the notion of “doing good while doing well” is not new. Religious orders and institutions were among the original innovators in values-based investing. Catholic monastic orders first came to national attention as activist investors in the 1980s. Dozens of orders, including the Sisters of Charity, led a tireless public campaign to pressure major companies to cease business in South Africa, which provided economic support to the Apartheid system. In later decades, Catholic orders developed an active interest in sectors ranging from energy to consumer goods, with an increasing focus on environmental, labor, and public health issues.
“More and more, we realized that we do have a voice, and we can use our money to make our voice more powerful,” says Sister Meg Sweeney, the Chief Financial Officer for the Sisters of Charity of New York.
Individuals Move Institutions
Individual Catholics have also used investment strategies to make their voices more powerful. Asset managers have offered portfolios compliant with Church teachings since at least the 1970s. However, these have been primarily available to Church-related institutions, including monastic orders and educational and healthcare nonprofits. Ave Maria Mutual Funds, which is open to individuals, has gathered over $3 billion in assets under management since its 2001 launch, making it the largest US Catholic mutual fund manager. Since its inception in 2016, the Global X S&P 500 Catholic Values ETF (CATH) has grown to over $590 million in net assets.
“Initially, people just used to ask, ‘How’s my performance? How’s my performance?’” said Christopher McMahon, CEO of Aquinas Wealth Advisors. “Then, maybe 15 years ago, some of them started to tell me that they don’t want to own big oil.” In the last five or six or seven years, he’s found more customers asking him for faith-aligned portfolios.
McMahon is also the founder and CEO of MFA Wealth, a Pittsburgh-based comprehensive financial advisory firm with $500 million in assets under management. He founded Aquinas in 2021 as an independent advisor catering to investors wishing to incorporate Catholic values into their investment process.
Aquinas has rapidly gained traction, with investors representing assets of more than $100 million in discussions with the firm. Although designed for individual investors, the company has also had unexpected success onboarding faith-based institutions as clients. At least 75 of them, according to McMahon.
The firm’s marketing focuses on a proprietary web-based platform created by Morales Technologies, a company McMahon and his partners own. Using a factor-based model, the platform allows Catholic investors to calculate their “Faith & Finance Score” by screening companies based on Catholic values and exploring outcomes based on their investment goals.
“I think some of what we’re doing was born out of ESG. Kind of countered ESG, if you will,” McMahon said. “Although born of compassion… it’s highly, highly contrary to Catholic values, right? You say ‘reproductive rights’ to a bunch of Catholics, and they’ll say, ‘That’s for abortion.’”
A core portion of faith-based investing shows historical investment performance largely in line with broad-based market returns (see sidebar). There are signs that this correlation will be tested going forward.
The Impact of Dobbs
One of the key social issues Catholic investors focus on is abortion. Before the Supreme Court’s 2022 ruling on Dobbs v. Jackson Women’s Health Organization, divestment from “abortion stocks” was simpler.
There were few public companies with any actual overlap, direct or indirect, between their business models and the procedure, so any due diligence involved screening donations made by corporate executives to pro-choice organizations, including Planned Parenthood. Faith-based investors were left to decide whether the personal beliefs of individuals in C-suite roles were enough cause to sell stock in a company that employed them.
The result was that Advisors could list abortion as a factor screened for in client portfolios without needing adjustments that would cause divergence from the broad market.
Dobbs changed this calculus.
Since abortion rights now vary from state to state, subsidies for abortion-related travel in employee health insurance coverage have become a tangible point of contention for investment advisors who screen stocks by religious principles. Among the principal targets are mega-cap technology stocks that have adjusted health plans in this manner, such as Apple, Alphabet, and Amazon.
These stocks account for an outsized proportion of the S&P 500’s market capitalization, earnings, and growth. The timing of Dobbs coincided with a reversal of fortunes for Tech stocks aiding faith-based portfolio performance. Their absence from portfolios will likely drive significant divergence from benchmarks in the long term.
Some experts believe that underperformance will be unlikely to dissuade the faithful.
In a 2020 paper entitled “Fleeing from Sin: Sin Stocks and Christian Investing,” Shane Enete, Professor of Finance at California-based evangelical college Biola University, concluded that performance for many religious investors is secondary. “The moral benefit accrued to an investor who excludes sin stocks in their investment portfolio may far outweigh any potential investment performance opportunity cost,” he wrote.
The Catholic stance on abortion disqualifies some large-cap companies, and for this reason, McMahon said the portfolios of his faith-based investment clientele tend to underperform in this area. Generally, he said his faith-based investments, like ESG, stay on par with the market.
Moral Benefit Versus Portfolio Performance
By nature, all organized religions present a defining set of doctrines for adherents. Financial advisors who work with Catholic investors say their clients may be less dogmatic, more pragmatic, and more personal in applying faith to investments.
According to Aquinas’ McMahon, his clients’ takes on environmental issues demonstrate this diversity.
“Generally, the clients we have are in alignment with the Vatican’s views for the most part. However, people look at the guidance with an informed eye and digest it for themselves.”
Another key differentiating factor, according to McMahon, is respect for secular values not uncommon among Catholics. He said this is part of why he has maintained strong relationships with clients of all faiths and values.
Deborah Meyer is the founder of WorthyNest, a firm based in Punta Gorda, FL, that combines fee-only wealth management with a CPA practice for families and business owners. She is also a member of the Catholic Financial Planners Network, founded in 2019. She has had several clients seek her out because they were seeking an advisor familiar with incorporating Catholic doctrine into investments.
According to her, some noticeable differences exist between active Catholics and other Christians and her more secular clients. These include a tendency to give more to charity over the course of their life rather than waiting until the end of life to bequeath it to causes.
“Most of the Christians I work with are doing some form of charitable giving, and that’s a sacrifice to them,” Meyer said. “Even in their working years, a lot of them are very intentional about giving a certain percentage of their income away.”
Meyer also sees a trend for Catholics to be more concerned with preparing for end-of-life issues generally and living wills specifically.
The types of values-based company screenings and client advisement McMahon and Meyer employ are different from the boardroom activism of nuns like Sister Meg of the Sisters of Charity in New York. Still, they have the same goal: to balance Catholic values with corporate bottom lines.
Today, orders such as the Sisters of St. Dominic, the Sisters of St. Francis, and many others remain prominent activist investors, relentlessly drafting shareholder resolutions, meeting with executives, and drawing public attention to issues of moral importance like climate change.
Sister Meg manages all proxies in-house —something that Aquinas’ McMahon says his firm is working to include in its service to individuals soon. Likewise, Sister Meg is looking to adopt some of McMahon’s ESG-style strategies.
“We are increasingly interested in impact investing, which I think is fascinating — and probably more powerful than some things we have done in the past.”