Good Returns

It would be difficult to determine exactly how many people who consider themselves pro-life also invest in the stock market. But my experience as an investment counselor and mutual fund manager indicates that many investors do worry that the corporations whose stocks they hold might be contributing to evils they oppose.

This is a realistic concern. Far more companies than might be imagined participate directly in abortion, fertility control, embryo-destructive research, distribution of pornography, and other practices that diverge from the traditional Catholic moral understanding and violate specific Church teachings.

But it is possible for investors of conscience to avoid tainting their portfolios with ethically questionable holdings, and there is a strong moral case for the effort. It has to do with exactly what investing in the stock market involves.

INVESTING MEANS OWNERSHIP

When you acquire the stock of a corporation, you become one of the company’s owners. This is true whether your shares are newly issued by the firm (perhaps in an initial public offering), or whether you have purchased existing shares through the secondary market of a stock exchange. It is equally true if you have inherited your shares or received them as a gift. Your ownership interest is real, it is significant, and it has the force of law behind it.

The company you own acts in your name, not only in delivering value as an investment by maintaining and improving its profitability, but in what it does on a daily basis. The one and only fiduciary responsibility which a board of directors has is to protect the interests of the investors who own the firm. At the same time, your status as an owner gives you certain ethical obligations as regards the policies and procedures by which the company operates.

There is, of course, a difference between legal and moral responsibility. The law of corporations protects individual shareholders from direct liability for the company’s actions. Owning stock is not the same as being a partner. And that is an indispensable advantage to corporations in raising capital. The number of stock buyers would shrink to a tiny fraction of the current investing population if acquiring shares brought personal liability for business failures, loan defaults, or unpaid company bills.

But as an investor, your participation in the corporate process is real and cannot be ignored. The amount of money you invest influences a company’s current stock price, and impacts future price movements. It becomes part of the company’s capital structure, helping to determine its financial viability, the level at which it can function, and its ability to raise future capital. The stocks you hold are not just claim checks on some possible future reward (like lottery tickets). They are real parts of real companies that produce real products and provide jobs for real people. Your investment portfolio is thus part of the economic life of the nation. It has power—power which is in your hands—and power is a distinctly moral concept.

This reality has given rise to a movement known as “Socially Responsible Investing,” in which stockholders have sought to influence the business community in support of—or in opposition to—a variety of causes. For instance, motivated investors have played a significant role in putting race- and gender-equity issues on boardroom agendas, not to mention the environmentalist stockholder agitation that has assisted in prodding virtually all major US corporations to “go green” (if, in some cases, more in their public relations pronouncements than in their actual operations).

A September 2008 article in Forbes reported that there were 173 ethically themed mutual funds, representing $172 billion in assets. Many of those have a religious orientation, some with actual denominational affiliations. A small number specifically include prolife concerns among their investment criteria. Of those, I manage the largest group, the Ave Maria Mutual Funds, a family of five pro-life investment funds based on a concept that I call “Morally Responsible Investing.”

While Socially Responsible Investing (SRI) addresses a broad spectrum of economic, political, and environmental issues, Morally Responsible Investing (MRI) focuses specifically on making investment decisions that embrace two key areas of concern. Overshadowing every other consideration is the sanctity of life—in other words, abortion. Protecting life from the moment of conception is the sine qua non of all human concern. If children are not born, there can be no other concern. Following close on the sanctity of life is the inviolability of marriage.

A number of other issues are important and may make legitimate claims upon our compassion, charity, and personal commitment. But the sanctity of life and the inviolability of marriage constitute the basis of our being and our human uniqueness. They go to the essence of family—the very foundation of every civilization, every cultural movement, every religion in human history.

That’s why this pair of concerns has always received special att ention in the Judeo-Christian moral tradition, particularly in the moral theology of the Catholic Church. In addition, they have undeniable economic implications. Family security, provision for spouses, the future welfare of children are at the heart of most personal investment decisions. They even provide much (if not most) of the impetus for building businesses.

THE CRITICAL ISSUES

The legality of abortion pollutes the moral atmosphere of society in general. If it is permissible to slaughter the most helpless and innocent among us, then on what ethical basis can we prohibit any other harmful act? The acceptance of abortion thus throws law itself into question, weakening the moral foundation of our entire culture. So if you seek to invest in a way that is morally responsible, the starting point has to be avoiding companies that participate in or provide support for abortion, as well as any mutual funds that have the shares of complicit companies among their holdings.

Closely connected with abortion are the subjects of artificial birth control and clinical procedures that manipulate fertility. Catholic teaching prohibits the use of chemical or mechanical devices that interfere with conception, and also medical procedures through which embryos are created by means other than natural in vivo (that is to say, within the body) fertilization. So investments in companies involved in manipulative practices, or in research that destroys human embryos, can only be considered illegitimate.

The other leg upon which MRI stands is the sanctity of marriage, and the most corrosive infl uence in husband- wife relationships subsidized by investment dollars is pornography. It might seem that opportunities to invest in pornography are limited, since most hardcore material comes out of privately held production firms, some associated with organized crime, or from easily recognizable offenders like Playboy Enterprises.

However, porn-related investments primarily are on the distribution side, involving America’s most prominent communications firms. I’m talking about cable and satellite television operators, Internet service providers, some of the largest periodical publishers and distributors, even phone companies. Add to those the video rental chains, hospitality f rms offering on-demand “adult” fare in hotel rooms, and some of the leading big-box and shopping-mall retailers, and you begin to grasp the scope of the pornography market.

There are some who argue that it’s impossible to avoid morally offensive investments, and that even if problematic stocks are identified, eliminating them from your portfolio will inevitably limit investment options and thus guarantee poor returns. Neither of these propositions is true.

The documented history of returns for ethically themed funds demonstrates that one need not sacrifice integrity for the sake of good returns. The key to such performance is thorough, careful, professional research that screens out companies with morally offensive policies and practices while identifying those that have good business characteristics and appreciation potential consistent with the well-established principles of “Value Investing.” Practiced by successful investors like Warren Buffett , Value Investing, at its core, involves carefully analyzing all the things of worth in a company, adding them up, subtracting the liabilities, and comparing the result to the price-per-share at which the company is trading in the marketplace. If the company’s intrinsic business value is significantly greater than the market price of its shares, then that company is a logical investment candidate.

Another important factor in our success is diversification of investments, which is generally recognized as an essential means of mitigating risk and maximizing returns over the long term. By allocating your investments over different asset classes and styles, you reduce risk and increase your probability of gain over a complete market cycle. Diversification is essential, whether you invest in mutual funds or individual stocks and bonds.

Each of the Ave Maria Mutual Funds is well-diversified. That was one of the means by which we were able to come through the dramatic economic shocks of 2008-09 in much bett er shape than most other funds or the market in general. For instance, our bond fund includes some carefully selected stocks to balance the stability which bonds afford with a measure of growth potential.

Morally Responsible Investing, as I have practiced it, is more than a means of avoiding conflicts of conscience while seeking favorable investment returns. I believe it can make a positive contribution to the advance of the pro-life cause. While abortion was a marginal issue in the last election, polls tell us that there was a significant percentage of voters who saw it as a key concern, specifi cally those who attend church regularly, are active in their faith communities, and hold traditional moral views.

Such people can gain infl uence by being practical investors. We can identify companies that have both good investment merits and policies that are consistent with MRI principles, and then support them with our investment capital. In this way we can become an important shareholder bloc whose contentment corporate managers will recognize is in their best interest to ensure. Essentially, we will combine the desire for investment success with moral volition to achieve a Christian end.

If you sense that the arguments I put before you are true, then I urge you, as a matter of conscience, to consider what they imply for your own investing.