Catholic Values and Direct Indexing: No Performance Penance Needed

Abstract

In this article, we demonstrate that Catholic investors are able to own a market-like portfolio that is well aligned with their faith. We examine the MSCI USA Catholic Values index and the S&P 500 Catholic Values index. We show that the performance from 1998 to 2021 was largely in line with the base index, with some outperformance observed in the recent ten-year period. We highlight a direct indexing method for reducing performance variations observed in the standard Catholic values indices. Using less restrictive screens and optimization methods, we create a portfolio with reduced tracking error relative to the target index. We also discuss applications to global markets, taxable investors, and the issue of active ownership.