Values alignment across complete portfolio construction presents both opportunities and considerations. The Capstone Biblically Informed Canadian and U.S. Equity Funds address equity allocation needs, but comprehensive portfolios typically include multiple asset classes. Understanding how these funds fit within broader portfolio contexts helps investors build complete solutions.
This article provides general portfolio construction education. It does not constitute specific allocation recommendations. Investors should work with qualified financial advisors.
Asset Allocation Fundamentals
Portfolio construction begins with asset allocation: the division of investment capital among major asset classes based on objectives, risk tolerance, and time horizon.
- Equities provide growth potential through ownership stakes in businesses. They carry higher volatility but historically have delivered higher long-term returns.
- Fixed Income provides stability and income through bonds and other debt securities. These generally show lower volatility while providing regular interest payments.
- Alternatives include real estate, commodities, and other assets with return patterns different from traditional stocks and bonds.
- Cash provides liquidity and stability but typically generates minimal returns.
- Diversification Principles: Diversification across asset classes, geographies, and sectors helps manage risk by reducing dependence on any single investment or market segment.
Canadian Equity Fund Overview
The Capstone Biblically Informed Canadian Equity Fund addresses the Canadian equity portion of portfolio allocations.
Canadian Equity Allocation: For Canadian investors, domestic equity exposure provides home currency denomination, tax-efficient dividend income in non-registered accounts, and alignment with Canadian economic conditions.
The fund's focus on dividend-paying securities particularly suits investors seeking income-oriented Canadian equity exposure. The Capstone Canadian Equity Income Strategy has generated a 4.2% dividend yield (reflecting separately managed accounts, which cannot be guaranteed for the fund).
Portfolio Applications: The fund can serve as a core Canadian equity allocation for values-focused investors, replace existing Canadian equity holdings that don't meet biblical research criteria, complement other Canadian equity positions, or provide the Canadian component of geographically diversified portfolios.
Characteristics to Consider: Active management creates performance patterns different from passive index approaches. Dividend focus tilts toward income generation versus pure capital appreciation. Biblical research criteria produce different sector exposures than broad market portfolios.
U.S. Equity Fund Overview
The Capstone Biblically Informed U.S. Equity Fund addresses U.S. equity allocation needs with values alignment.
U.S. Equity Exposure: U.S. equities form a standard component of a diversified portfolio. The U.S. market offers larger size, broader sector representation, and different company characteristics than Canadian markets.
The fund provides this U.S. exposure within a Canadian fund structure with Canadian dollar denomination and biblical research criteria applied consistently.
Portfolio Applications: The fund can serve as core U.S. equity allocation for values-focused investors, provide international diversification while maintaining Christian values alignment, complement TSX:BIVC for complete North American equity exposure, or fill U.S. equity allocation within balanced portfolios.
Characteristics to Consider: Balanced approach to growth and income differs from pure growth or income strategies. Canadian dollar denomination means currency fluctuations impact returns. Foreign income tax treatment affects positioning within registered versus non-registered accounts.
Beyond the Funds: Other Portfolio Components
International Equity Exposure: Beyond North America, developed market and emerging market equities provide additional diversification. Currently, Capstone does not offer biblically informed funds for these geographies.
Fixed Income Allocation: Fixed income provides portfolio stability and income. For investors seeking value-aligned bond exposure, options remain more limited than equity alternatives. Most investors maintain values alignment primarily in equity allocations where biblically informed options exist. Capstone has provided value-aligned bond allocations for investors who have separately managed accounts.
Cash and Alternatives: Cash typically doesn't raise values alignment questions beyond choosing financial institutions. Alternative investments vary widely in structure and availability.
Geographic Diversification: Canadian and U.S. Working Together
The two funds together provide diversified North American equity exposure with consistent values alignment.
Complementary Market Exposures: Canada's market concentrates in financials, energy, and materials. The U.S. market shows broader sector representation including substantial technology, healthcare, and consumer sectors.
Combining the funds provides access to both markets' opportunities while applying biblical research consistently across geographies.
Allocation Considerations: Canadian investors often maintain home country bias, allocating more to Canadian equities than market capitalization weights would suggest. However, excessive home bias can create concentration risk.
Typical Canadian balanced portfolios might hold 25-40% of equity allocation in Canadian stocks and 25-30% in U.S. stocks. These ranges vary based on individual circumstances and preferences.
Account Type Optimization
Non-Registered Accounts: The Capstone Biblically Informed Canadian Equity Fund may be more suitable due to Canadian dividend tax advantages. The Capstone Biblically Informed U.S. Equity Fund’s foreign income treatment makes it less tax-efficient in non-registered accounts.
Registered Accounts (RRSPs, TFSAs, RESPs): Both funds work well in registered accounts where tax treatment doesn't differ between income sources. The U.S. Fund may be particularly suitable for registered accounts.
Sample Allocation - Non-Registered: Hold The Capstone Biblically Informed Canadian Equity Fund for tax-efficient Canadian dividend income.
Sample Allocation - RRSP/TFSA: Hold The Capstone Biblically Informed U.S. Equity Fund for U.S. equity exposure to avoid foreign income tax concerns. Fixed Income holdings are often overweight in registered accounts as well, since they produce interest income, which is taxed inefficiently as regular income.
Risk Tolerance and Time Horizon
Conservative Investors: Lower equity allocation overall. Within equity allocation, potentially favor the Canadian Fund for dividend income focus.
Moderate Investors: Balanced equity and fixed income. Within equity allocation, combine both Funds for diversified values-aligned equity exposure.
Time Horizon: Longer time horizons support higher equity allocations. Shorter time horizons require more conservative positioning regardless of values alignment preferences.
Rebalancing Considerations
Regular Rebalancing: Periodically adjust portfolio holdings back to target weights as market movements cause drift from allocation targets.
Threshold Rebalancing: Rebalance when holdings drift beyond predetermined thresholds (e.g., 5% from target weights).
Tax-Aware Rebalancing: In non-registered accounts, consider tax implications of rebalancing trades. Registered accounts allow rebalancing without tax consequences. For non-registered accounts, it’s important to consider the tax implications of rebalancing trades. In registered accounts, rebalancing can be done without triggering tax consequences. Many investors also use year-end tax-loss selling to offset realized capital gains. This is a useful strategy, but be mindful of the superficial loss rules.
Working with Financial Advisors
Financial advisors help determine appropriate allocations considering complete client circumstances including investment objectives, risk tolerance, time horizon, tax situation, other portfolio holdings, and income needs.
Advisors also assist with implementation, rebalancing, monitoring, and adjusting allocations as circumstances change.
Conclusion
The Capstone Biblically Informed Canadian and U.S. Equity Funds provide the building blocks for values-aligned equity allocation. When combined with appropriate fixed income, cash, and potentially alternative investments, these funds enable comprehensive portfolio construction maintaining Christian values alignment in equity holdings.
Thoughtful asset allocation, appropriate account type placement, and regular rebalancing help these funds serve their intended roles within complete portfolios.
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+ at www.sedarplus.ca or consult with a registered investment dealer or advisor.