The debate between active and passive investing shapes many portfolio decisions. For investors seeking portfolios aligned with Christian values, this choice takes on additional dimensions. While passive index funds offer low costs and market-matching returns, they face fundamental limitations when values alignment matters.
This article provides educational information comparing investment approaches. It does not constitute investment advice.
The Active vs. Passive Landscape
Passive investing through index funds offers compelling benefits: low management fees, broad diversification, tax efficiency, and performance matching market benchmarks. Index funds hold all stocks in an index, weighted by market capitalization, requiring minimal active decision-making.
Active management involves portfolio managers making deliberate decisions about which securities to hold, position sizing, and when to buy or sell. This approach typically costs more but aims to add value through security selection and ongoing management.
When values alignment enters the equation, the calculus changes. Biblical investing requires evaluating companies beyond financial metrics to assess alignment with Christian values. This requires human judgment, ongoing research, and active decision-making that passive index replication can't provide.
Why Index Funds Can't Apply Biblical Research
Index funds operate through mechanical rules that create fundamental limitations for values-aligned investing.
Market Capitalization Weighting: Index funds weight holdings based on market capitalization. The largest companies receive the largest portfolio weights regardless of business practices, revenue sources, or alignment with biblical principles. An index fund cannot overweight companies demonstrating values alignment or exclude companies whose activities conflict with Christian values.
Comprehensive Holdings: Broad market index funds hold hundreds or thousands of companies. An investor purchasing a TSX or S&P 500 index fund owns shares in every company included, regardless of how those companies conduct business. For investors seeking Christian values alignment, this creates inevitable misalignment.
No Selectivity: Index funds cannot apply screening criteria without ceasing to be true index funds. Some fund providers offer values-based index products, but these operate through predetermined rules rather than ongoing human research and judgment.
Active Management Benefits for Biblical Investing
Human Oversight: Biblical research requires human judgment about complex questions. Does a company's treatment of employees reflect respect for human dignity? Do business practices demonstrate environmental stewardship or exploitation? Does corporate culture align with biblical principles?
These questions don't yield to automated screening. They require research analysts evaluating qualitative factors, examining corporate disclosures, assessing business practices, and making informed judgments.
The Capstone Biblically Informed Canadian and U.S. Equity Funds employ a dedicated biblical research analyst conducting this human-led evaluation, examining potential holdings and existing portfolio companies continuously.
Ongoing Monitoring: Companies change, as business strategies evolve, acquisitions add different revenue sources, and policies shift. Active management with biblical research criteria means continuously monitoring these changes.
If a portfolio holding develops values concerns, active management can respond. The BIO Committee can evaluate whether the company continues meeting criteria or should be removed. The committee is composed of four members with 105+ years of combined investment experience who review, debate, and vote on all stock selections from a biblical perspective.
Index funds cannot make these adjustments.
Selective Portfolio Construction: Active management allows selective positioning in companies demonstrating both financial merit and values alignment. The portfolio can overweight holdings showing strong Christian values alignment while excluding companies whose activities conflict with biblical principles.
The Biblically Informed Approach
Four-Component Analysis: Every potential holding undergoes evaluation. First, traditional fundamental analysis examines financial strength, business quality, and valuation. Second, additional due diligence applies the Four Guiding Investment Principles: valuing human life, stewarding creation responsibly, encouraging healthy behaviors, and supporting biblically consistent practices.
Third, biblical alignment filters ensure consistency with broadly accepted Christian values. Fourth, consultation with Brightlight Impact provides independent third-party research to support decision-making.
This multilayered approach requires active management infrastructure: an investment team conducting traditional equity research, a dedicated biblical research analyst evaluating values alignment, and BIO Committee reviewing and approving all stock selections.
Portfolio Management Discipline: The same Portfolio Managers applying proven investment discipline to the Capstone Canadian Equity Income Strategy manage both funds, making deliberate decisions about position sizing, sector allocation, and overall portfolio construction reflecting both financial analysis and biblical research findings.
Portfolio Construction
Meaningful Positions: The funds maintain meaningful positions in holdings demonstrating strong financial merit and values alignment. Position sizing reflects conviction based on research quality rather than market capitalization.
Diversification Balance: While concentrating in best ideas, the funds maintain sufficient diversification to manage company-specific risks.
BIO Committee Governance
Every stock selection requires BIO Committee review and approval. The committee receives compiled research, evaluates companies against the Four Guiding Investment Principles, discusses complex cases requiring nuanced judgment, and votes on whether companies meet criteria.
This governance structure ensures biblical research maintains integrity. Committee members bring 100+ years of combined investment experience, including one independent external member.
The BIO Committee's role doesn't end at initial approval. If holdings develop values concerns, the committee evaluates whether companies continue meeting criteria.
Responding to Change
When portfolio holdings undergo significant changes, including acquisitions, new business lines, or policy shifts, active management can evaluate implications for both financial merit and values alignment. If changes create concerns, the investment team can reduce positions or exit holdings entirely.
This adaptability matters particularly for biblical investing where corporate actions can affect values alignment.
Understanding the 0.80% Management Fee
What the Fee Supports: The 0.80% management fee for the ETF series supports experienced Portfolio Managers conducting fundamental analysis, dedicated biblical research analyst performing ongoing research, BIO Committee governance, partnership with Brightlight Impact for independent research, and compliance and operations infrastructure.
Compared to Alternatives: At 0.80%, the fee is competitive among actively managed Canadian equity funds. While passive index funds charge less (often 0.05%-0.25%), they don't provide biblical research or active values-alignment oversight.
Value Proposition: For investors purely maximizing returns while minimizing costs, low-cost index funds may serve better. For those seeking portfolios aligned with Christian values alongside professional investment management, the fee supports infrastructure and expertise passive approaches cannot provide.
Performance Considerations
Tracking Difference: The funds will perform differently than broad market indices. Biblical research criteria create different sector weights and company selections. This differentiation is intentional, reflecting values-based selection.
Some periods may see outperformance while others show underperformance. Active management with values criteria accepts this tracking difference as inherent to the approach.
No Guarantees: Past performance does not indicate future results. While these funds are managed by an experienced team who have produced excellent results for the Capstone Canadian Equity Income Strategy, these funds are new and longer term performance cannot yet be proven.
Long-Term Orientation: Active management with biblical research criteria suits investors with long-term time horizons. Evaluating these funds over extended periods provides better perspective.
When Passive Approaches May Make Sense
Balanced evaluation acknowledges passive investing serves many investors effectively:
Investors seeking low-cost, diversified market exposure without values considerations
Those wanting exposure to entire markets covering hundreds or thousands of companies
Investors whose values considerations differ from biblical research criteria
Those prioritizing minimal costs above other considerations
The choice depends on individual circumstances, priorities, and objectives.
Making Your Choice
About Values Alignment:
Do I seek portfolios aligned with Christian values?
Does the biblical research methodology align with my convictions?
Does values alignment matter enough to accept higher fees than index funds?
About Active Management:
Do I believe human oversight adds value in both financial analysis and values assessment?
Am I comfortable with performance that may differ from market indices?
Do I have a long-term time horizon?
About Suitability:
Do these funds fit my risk tolerance and investment objectives?
How would they complement my other holdings?
Have I consulted with a qualified financial advisor?
Your answers, discussed with a qualified financial advisor, help determine whether these funds align with your needs.
Conclusion
Active management serves biblical investing by enabling human research, ongoing monitoring, selective portfolio construction, and responsive adaptation that passive index funds cannot provide.
For investors prioritizing portfolios aligned with Christian values alongside professional investment management, active management provides the framework making values-consistent investing possible.
For more information, visit capstoneassets.ca or call 1.855.437.7103.
*Important Disclosures: Commissions, trailing commissions, management fees, and expenses may be associated with investments in mutual funds and exchange-traded funds. Please read the prospectus before investing. Mutual funds and ETFs are not guaranteed; their values change frequently, and past performance may not be repeated. The simplified prospectus, fund facts, and ETF facts are available on SEDAR+ a twww.sedarplus.ca or consult with a registered investment dealer or advisor.