Ethical investing and ESG both use similar tools to evaluate companies, but ethical investing relies on a longstanding moral framework focused on assessing involvement in moral harm, while ESG uses shifting environmental, social, and governance criteria; the key difference lies in the reasoning behind investment decisions.
ETF creation/redemption costs are generally borne by the transacting AP/market maker and are incorporated into the economics of ETF trading—often through creation/redemption fees, arbitrage bands, premiums/discounts, and bid-ask spreads. This tends to protect non-trading, long-term shareholders from the transaction-cost dilution that can occur in mutual funds when other investors subscribe or redeem.
ETFs have additional trading costs beyond the expense ratio, such as commissions, bid-ask spreads, and fees, which can reduce returns and should be considered by investors when evaluating total investment costs.
ETFs use in-kind processes to reduce transaction costs compared to mutual funds, but they still incur expenses from trading activities such as rebalancing, reinvesting dividends, and adjusting holdings, all of which can impact returns.
The USCCB Socially Responsible Investment Guidelines and Mensuram Bonam both guide Catholic institutions on faith-aligned investing, sharing core themes like protecting human life and dignity but differing in specificity and scope, with Mensuram Bonam aiming to foster a global dialogue on Catholic Social Teaching in investments.
Passive, market-cap weighted investment strategies generally incur lower transaction costs and capital gains taxes compared to active strategies, resulting in a total cost advantage that extends beyond lower management fees.
Not all index funds are passive; some now hold concentrated portfolios that differ from the broader market, so investors should examine the fund's actual holdings.
The traditional distinction between active and passive investing is inadequate, noting that investors may deviate from market portfolios for reasons beyond information arbitrage, such as seeking uncorrelated risk premiums.
The profitability factor (RMW) measures the return difference between highly profitable and less profitable companies using a long-short strategy; Integrity favors companies with strong profitability to seek higher long-term expected returns for clients.
The value factor (HML) measures the return premium of value stocks over growth stocks using a long-short strategy, and Integrity tilts portfolios toward value to seek higher long-term expected returns.
The size factor (SMB) reflects the historical outperformance of small-cap over large-cap stocks by using a long-short strategy; Integrity incorporates this by favoring smaller firms to enhance long-term portfolio expected returns.
Integrity defines a factor as a return stream from sorting stocks by traits such as size, value, or profitability, using these long-short factor returns to guide portfolio tilts toward characteristics associated with higher long-term expected returns.
Evidence-based investing uses research to focus on long-term return factors, and at Integrity, this approach is combined with Catholic values and corporate engagement to align clients' financial and faith-based objectives while maintaining diversification and expected returns.
Expected return is the probability-weighted average of potential investment outcomes; Integrity targets higher expected returns by focusing on factors like size, value, and profitability, while adhering to Catholic values.
Screening in investing involves selecting or excluding companies based on ethical criteria, with negative screening excluding those involved in activities like abortion or pornography, and positive screening including those that align with specific values. At Integrity, we use screening to help investors avoid cooperating materially with morally problematic practices.
Transparency in investment strategies allows investors to clearly understand their holdings, evaluate manager performance, benefit from lower costs, and make more informed portfolio decisions.
A multifactor investment strategy diversifies a portfolio across several proven risk factors, such as value and size, to enhance expected returns and reduce concentration risk, using a systematic, evidence-based approach rather than market timing or stock picking.
Integrity strategies use a systematic, flexible approach to tilt portfolios toward securities with higher expected returns, aiming for diversified risk factor exposure and consistent targeting of return premiums while minimizing costs and strategy drift compared to traditional index funds.
The text explains that analyzing market prices and company fundamentals helps identify expected returns, and by using quantitative methods to focus on characteristics linked to higher returns, portfolios can be constructed to capture risk premiums associated with factors like value, profitability, and investment.
Markowitz defined risk as the volatility of returns, measured by variance or standard deviation, and showed that portfolio risk depends on how asset returns move relative to each other; diversification reduces overall risk when assets are not perfectly correlated.