Author Spotlight ~ George Schwartz, CFA

Investing with a Sense of Moral Responsibility
Taken from an article by George Schwartz, CFA, author of 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 a financial 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, embryo-destructive research, distribution of pornography, and other practices that diverge from the traditional Christian moral understanding and violate specific Church teachings. Still more subsidize, or in other ways promote, such challenges to life, families, and human well being.

However, 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.

A September 2008 article in Forbes Magazine 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 pro-life 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 which 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.

The other leg upon which Morally Responsible Investing stands is the sanctity of marriage, and the most corrosive influence in husband-wife relationships subsidized by investment dollars is pornography.

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.

Value and Diversification

The documented history of the Ave Maria Mutual Funds, for example, demonstrates that one need not sacrifice integrity for the sake of good returns. Indeed, we have achieved outstanding investment performance for our 25,000-plus shareholders. Most notable are our two 5-star-rated funds — the Ave Maria Rising Dividend Fund (AVEDX) and the Ave Maria Growth Fund (AVEGX) — each of which is in the top ten percent of its category, as determined by the mutual fund rating service, Morningstar.

The key to such performance is thorough, careful, professional research that not only screens out companies with morally offensive policies and practices, but that identifies those that have good business characteristics and growth potential according to the well established principles of “Value Investing.” Practiced by such financial wizards as Warren Buffett, Value Investing consists of 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 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.

A Moral Imperative

Morally Responsible Investing, as I have practiced it, is more than a means of avoiding conflicts of conscience while seeking financial security. 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, specifically those who attend church regularly, are active in their faith communities, and hold traditional moral views.

Such people can gain influence 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 economic security 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.

George P. Schwartz is a Chartered Financial Analyst and Registered Investment Advisor with special expertise in mutual funds. He is president of the Michigan-based Schwartz Investment Counsel, Inc., a company he founded in 1980. Schwartz’s intimate knowledge of financial markets and deep personal commitment to the Catholic Faith led to his co-founding the Ave Maria Mutual Funds, along with Catholic entrepreneur and philanthropist, Tom Monaghan, and former Commissioner of Major League Baseball, Bowie Kuhn.