Canadian investors have long recognized the value of U.S. equity exposure within diversified portfolios. The U.S. market offers different characteristics, sector opportunities, and company sizes than Canada's equity market. For investors seeking portfolios aligned with Christian values, the Capstone Biblically Informed U.S. Equity Fund provides professionally managed U.S. market access within a Canadian fund structure.
This article provides educational information about the fund's approach to U.S. equity investing. It does not constitute investment advice or performance projections.
Why Geographic Diversification Matters
Canadian equity portfolios benefit from international diversification, and U.S. exposure typically forms the foundation of international equity allocation for Canadian investors.
Different Market Characteristics: Canada's equity market concentrates heavily in financials, energy, and materials sectors. These sectors represent Canada's economic strengths but create concentration that many portfolios address through international diversification.
The U.S. market shows broader sector representation, including technology, healthcare, consumer discretionary, and industrials at weights significantly different from Canada. This sector diversity provides access to industries less represented in Canadian indices.
Market Size Difference: The U.S. equity market is substantially larger than Canada's. This size difference means more companies to research, broader industry representation, and deeper markets across various sectors and market capitalizations. For investors seeking values-aligned investing with biblical research criteria, the larger U.S. market provides a broader opportunity set for identifying companies demonstrating both financial merit and Christian values alignment.
Economic Exposure: Canadian and U.S. economies, while linked, have different drivers and characteristics. Currency movements, commodity price sensitivity, interest rate policies, and regulatory environments differ between the countries, to name a few. Geographic diversification helps manage concentration in any single economic environment.
Fund Structure: U.S. Securities Within a Canadian Fund
Understanding the fund's structure helps investors appreciate how the fund provides U.S. equity exposure within a framework designed for Canadian investors.
Canadian Dollar Denomination: The Capstone Biblically Informed U.S. Equity Fund is denominated in Canadian dollars, meaning the fund's net asset value and distributions are expressed in CAD. This structure simplifies portfolio reporting and eliminates the need for Canadian investors to manage USD holdings directly for this portion of their U.S. equity exposure.
For self-directed investors and advisors building portfolios, CAD denomination means the fund integrates seamlessly with other Canadian dollar holdings without requiring separate USD account management.
Canadian Fund Structure: The fund operates as a Canadian mutual fund trust with ETF and non-ETF series. This structure means the fund is registered with Canadian securities regulators, reports using Canadian standards, and is designed to meet Canadian tax and regulatory requirements.
The Canadian structure provides accessibility through standard investment channels Canadian investors use, including both discount brokerages for self-directed investors and advisor platforms for those working with financial professionals.
U.S.-Listed Securities: Within this Canadian fund structure, the fund invests in U.S.-listed securities selected through both fundamental analysis and biblical research criteria. The fund holds actual shares of U.S. companies, providing direct equity exposure rather than derivative-based approaches.
Currency Considerations
Currency dynamics represent an important consideration for Canadian investors accessing U.S. equity markets.
Currency Exposure: When the fund purchases U.S.-listed securities, the fund holds stocks denominated in USD. The fund's underlying holdings are U.S. companies whose stock prices trade in USD. However, the fund's NAV is calculated and reported in CAD.
This means investors in the fund have exposure to both the performance of the underlying U.S. stocks and the CAD/USD exchange rate. If U.S. stocks appreciate in USD terms, the fund's CAD value reflects both that stock price gain and any movement in the CAD/USD exchange rate.
Currency as Diversification: Currency exposure works both directions. When CAD weakens against USD, U.S. equity holdings gain value in CAD terms even if their USD price remains unchanged. When CAD strengthens, the opposite occurs. This currency effect represents an additional dimension of diversification that international equity holdings provide.
Tax-Aware Approach: The fund is managed with a tax-aware approach, considering the tax implications of portfolio decisions for Canadian investors. However, unlike the Capstone Biblically Informed Canadian Equity Fund's Canadian dividend income which benefits from the dividend tax credit in non-registered accounts, the Capstone Biblically Informed U.S. Equity Fund's distributions are treated as foreign income for tax purposes.
Currency Risk Disclosure: Currency movements create additional variability in the fund's returns when measured in CAD. This currency risk is inherent in international equity investing and should be understood as part of the overall risk profile.
Market Size and Breadth
The U.S. equity market's size creates opportunities for active management with biblical research criteria.
Larger Opportunity Set: The U.S. market includes thousands of publicly traded companies across diverse industries, business models, and market capitalizations. This breadth provides more holdings for consideration to evaluate through biblical research, potentially yielding more holdings that satisfy both financial merit and values alignment criteria.
Company Diversity: U.S. market breadth includes companies at different stages of development, from established industry leaders to growing mid-cap businesses. Different business models, competitive positions, and growth profiles provide varied investment opportunities that active management can assess and select.
Sector Representation: The U.S. market provides substantial representation in sectors less prominent in Canadian indices. Technology companies, healthcare businesses, consumer discretionary firms, and industrial companies all offer opportunities for building diversified portfolios with sector exposures different from Canadian equity holdings.
Biblical Research Applied Across Borders
The same Four Guiding Investment Principles applied to Canadian companies extend to the Capstone Biblically Informed U.S. Equity Fund's research.
Consistent Methodology: Capstone's biblical research analysts apply the same methodology to U.S. companies as to Canadian businesses. The Four Guiding Investment Principles (valuing human life, stewarding creation responsibly, encouraging healthy behaviors, and supporting biblically consistent practices) provide the framework for evaluating whether U.S.-listed companies align with Christian values.
BIO Committee Governance: All stock selections undergo review and approval by the Biblically Informed Oversight Committee. The committee's four members with 100+ years of combined experience review and vote on all stock selections from a biblical perspective, providing the same governance structure for U.S. equities as for Canadian holdings.
Partnership with Brightlight Impact: Brightlight Impact, the independent third-party resource that performs analysis in addition to Capstone's research to provide support to the decision-making process, examines U.S. companies as well as Canadian businesses.
Cross-Border Research Considerations: While the methodology remains consistent, some research considerations differ between markets. U.S. companies may face different regulatory environments, labour practices, environmental standards, and corporate governance norms than Canadian businesses. The biblical research analyst must understand these contextual differences when evaluating alignment with Christian values.
Sector Opportunities in U.S. Markets
The U.S. market's different sector profile creates distinct opportunities compared to Canadian equities.
Technology Sector Presence: The U.S. market includes substantial technology sector representation largely absent from Canadian indices. Technology companies demonstrating values alignment through biblical research can provide growth-oriented exposure different from the dividend-focused financials and energy companies prominent in Canadian markets.
Healthcare Industry Depth: Healthcare represents another sector with deeper U.S. market representation than Canadian indices provide. Healthcare companies range from pharmaceutical manufacturers to medical device makers to healthcare services providers, each requiring specific biblical research evaluation.
Consumer and Industrial Companies: Consumer discretionary and industrial sectors show greater U.S. market depth than Canadian alternatives. These sectors include retailers, restaurants, manufacturers, transportation companies, and construction businesses.
Sector Weights Reflect Research: The fund's sector positioning is focused on biblical research findings rather than replicating U.S. market indices. Sectors where more companies demonstrate value alignment may show higher weights. Sectors with fewer companies meeting criteria may be underweight or absent, creating a portfolio that differs intentionally from broad U.S. market exposure.
Growth and Income: The Fund's Balanced Approach
The fund pursues both capital appreciation and income within its U.S. equity mandate, though with different characteristics than the Capstone Biblically Informed Canadian Equity Fund's Canadian dividend focus.
Capital Appreciation Emphasis: While the fund seeks both growth and income, the U.S. market's characteristics and the fund's structure mean capital appreciation represents a primary objective. Many U.S. growth companies pay modest dividends or reinvest earnings for growth rather than distributing high dividend yields.
This growth orientation complements the Capstone Biblically Informed Canadian Equity Fund's income focus, allowing investors to combine both funds to balance income generation from Canadian equities with growth potential from U.S. equities.
Income Considerations: The fund will generate some income from U.S. companies that pay dividends. However, unlike the Canadian fund's dividend income which benefits from tax advantages in non-registered accounts, the U.S. fund's distributions are treated as foreign income without dividend tax credit benefits.
This tax treatment difference makes the fund less tax-efficient for income generation in non-registered accounts compared to the Canadian fund. For investors prioritizing tax-efficient income, the Canadian fund or other Canadian dividend sources may be more suitable for non-registered holdings, while the U.S. fund might fit better in registered accounts where tax treatment doesn't differ between income sources.
Tax Implications: Foreign Income Treatment
Understanding the fund's tax treatment helps investors make informed decisions about account placement.
Foreign Income Classification: Distributions from the Capstone Biblically Informed U.S. Equity Fund are treated as foreign income for Canadian tax purposes. This classification means they don't receive the dividend tax credit that applies to Canadian eligible dividend income. Foreign income is taxed at your full marginal tax rate, similar to interest income.
No Dividend Tax Credit: Unlike the Canadian fund's dividend distributions, which may provide tax efficiency in non-registered accounts, the U.S. fund's distributions don't benefit from preferential tax treatment.
Account Placement Considerations: The tax treatment difference suggests the U.S. fund may be more suitable for registered accounts (RRSPs, TFSAs, RESPs) where income type doesn't affect after-tax returns. In non-registered accounts, the fund faces less favorable tax treatment than Canadian dividend-paying securities.
Consult Tax Professionals: Tax treatment varies based on your specific situation, including your province of residence, marginal tax bracket, other income sources, and account types. Consult with a qualified tax professional regarding your specific circumstances.
Portfolio Application
Complementing Canadian Holdings: The fund provides U.S. market exposure that complements Canadian equity holdings. Together, the Capstone Biblically Informed Canadian and U.S. Equity Funds offer geographically diversified equity exposure with consistent biblical research methodology throughout North America.
Sector Diversification: The fund's U.S. focus provides access to sectors underrepresented in Canadian markets, helping create more diversified equity portfolios.
Account Type Considerations: Given tax implications, consider holding the U.S. fund in registered accounts while potentially placing the Canadian fund in non-registered accounts where Canadian dividend tax advantages apply.
Conclusion
The Capstone Biblically Informed U.S. Equity Fund provides Canadian investors access to U.S. equity markets within a Canadian fund structure, combining professional investment management with biblical research criteria ensuring Christian values alignment.
For investors seeking geographic diversification, sector exposure beyond Canadian markets, and portfolios aligned with Christian values, this fund offers professionally managed U.S. equity access designed for Canadian investors.
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.