Naber (2001)

Naber, Mary. "Catholic Investing: The Effects of Screens on Financial Returns." The Journal of Investing, Winter 2001.

Reports backtested returns for seven equal-weighted portfolios for the January 1991-December 1995 time period. Constructed using the KLD database and the 1997 Institute for American Values Investing "Evaluator" database, these portfolios were:

  • Unscreened - The 555 companies in the 1991 KLD "Socrates" database
  • Traditional - Screened on military and life ethics (abortion and contraceptives)
  • Current - Screened on military, life ethics, and pornography/offensive entertainment
  • Social - Same as "Current" but also excludes tobacco and gaming.
  • Conservative - Same as "Current" but includes more restrictive abortion screen
  • Good Firms - All companies with a positive composite score in community, environment, and diversity, that also pass the "Current" screens.
  • Sin - All companies excluded from the "Current", "Social", and "Conservative" portfolios.

Returns were computed using the CRSP database. The portfolios were not optimized or matched according to sector exposures.

Finds that nominal compound returns for the screened portfolios fell below those of the unscreened universe, and that the "Sin" portfolio had the strongest returns. After adjusting for risk (using Sharpe and Treynor measures), however, these performance differences largely disappeared and were not statistically significant.

Concludes that "an investor adhering to Catholic principles can invest according to the good firms - or any other Catholic approach, and not fear a [statistically] significant effect on returns after adjusting for market risk."

A brief summary of this article appeared in the Winter 2001 CFA Digest.