Vatican's Catholic Indexes: A Flow Catalyst or a Benchmark for Licensing?

The Vatican Bank, known as the Institute for the Works of Religion (IOR), officially launched two new equity benchmarks on Tuesday. In partnership with Morningstar, the IOR introduced the Morningstar IOR US Catholic Principles and Morningstar IOR Eurozone Catholic Principles. Each index holds 50 medium- and large-cap stocks that the IOR claims are consistent with Catholic teachings on life, social responsibility, and the environment. This move follows years of reputational cleanup after past scandals.

The launch enters a crowded field of values-based investing. It faces established rivals like the S&P 500 Catholic Values Index, worth over $1 billion, and the Ave Maria Mutual Funds family, which reported over $3.8 billion in Catholic-themed assets last year. The IOR's own scale is small by comparison; its 2024 investment profit was just €38.1 million. This context suggests the new indexes are symbolic, aiming to signal ethical alignment rather than immediately capture significant market flow.

The primary near-term impact is likely licensing revenue for Morningstar. The IOR's role appears to be providing a values-based framework, while Morningstar handles the index construction and distribution. For now, the indexes serve as a benchmark for Catholic investors, but their direct influence on capital allocation is minimal. The real value may lie in seeding future ETF products built on this intellectual property.

Composition and Top Holdings Performance

The indexes are built for licensing, not immediate trading. Each holds 50 medium- and large-cap stocks deemed consistent with Catholic principles. The US index's top holdings include Meta Platforms and Amazon, while the Eurozone index features ASML Holding and Deutsche Telekom. This composition is designed to appeal to a values-based investor base, but the launch itself is not expected to generate significant direct trading volume.

The real flow catalyst is the potential for ETFs. The global ETF market increased nearly 30% to top $14 trillion in 2024, with a PwC report projecting it could reach $30 trillion by 2029. The Vatican Bank's debut sets up a clear path to license these benchmarks for new exchange-traded funds, a booming product category. This licensing model would provide a recurring revenue stream for Morningstar and the IOR, turning the indexes into intellectual property rather than standalone investment vehicles.

Yet institutional adoption faces a hurdle. The IOR's reputation for past financial misconduct, including allegations of money laundering and ties with organized crime, adds a layer of risk. This history could dampen demand from large, risk-averse asset managers looking to build ETFs on a new benchmark. For now, the indexes serve as a symbolic benchmark; their capital flow impact depends entirely on whether a major ETF issuer chooses to license them, a decision that will weigh the appeal of the Catholic theme against the bank's legacy.

Strategic Context and Market Opportunity

The immediate catalyst is the licensing of these indexes for new ETFs. The global ETF market is booming, with assets nearing $14 trillion and projected to double by 2029. The first ETFs based on these benchmarks would create direct inflows and outflows, turning the indexes from symbolic tools into active flow drivers. For now, the indexes themselves trade with minimal volume, but their performance against broad markets will be critical. Weak relative returns could hinder asset gathering, as investors seek better risk-adjusted gains.

The key guardrail is reputational. The Vatican Bank's history of financial misconduct, including recent convictions, adds a persistent risk. Any future scandal could instantly devalue the Catholic brand attached to the indexes, undermining investor trust. This legacy may deter large, risk-averse asset managers from building ETFs on the benchmarks, slowing the flow catalyst. The indexes serve as a benchmark for Catholic investors, but their capital flow impact is entirely contingent on whether a major ETF issuer chooses to license them.

Monitoring the indexes' price action provides a real-time signal. The underlying market data shows a volatile, slightly negative trend, with a 5-day change of -3.03% and a 120-day change of -10.75%. If the indexes track this underperformance, it will be a red flag for potential ETF sponsors. The bottom line is that the launch sets up a clear path to licensing revenue, but the flow catalyst depends on execution and reputation management.