Investing for Catholics (IFC) is a division of Index Fund Advisors, Inc. (IFA) and IFA and its division IFC do not guarantee any minimum level of investment performance or the success of any index portfolio, index, mutual fund or investment strategy. Past performance does not guarantee future results. There is a potential for loss in any investment, including loss of principal invested. All investments involve risk and investment recommendations will not always be profitable. No representation is being made that any IFC client account will or is likely to achieve profit or losses similar to those shown in hypothetical backtested performance. Impacts of federal and state taxes and trading costs are not included in the results of index portfolio or index returns. Hypothetical backtested performance information shown in text, charts, tables and graphs are provided for informational purposes only and should not be considered investment advice or recommendations to buy or sell any types of securities.
Hypothetical Backtested Performance
1. The hypothetical backtested performance index data represents a combination of index data and mutual fund data. The monthly data series begins with index data on January 1, 1928 and introduces live mutual fund data upon the inception date of the funds. Please refer to the IFC Indexes Data Sources page at www.ifcindexes.com for a description and the time series construction of the underlining index and mutual funds for each IFC Index. A review of the IFC Index Data Sources, IFC Indexes Time Series Construction (http://www.investingforcatholics.com/disclosures/charts/) and several of the Dimensional Indexes (http://www.investingforcatholics.com/disclosures/charts/) is an integral part of this disclosure and should be read in conjunction with this explanation of the hypothetical backtested performance of the indexes and the model IFC index portfolios, which are allocations of the IFC Indexes.
2. The investment strategy of the IFC index portfolios is a buy and hold strategy with annual rebalancing of the index allocation on the first of each year. The data is provided to show historical risk and return performance had the indexes and index portfolios been available over the relevant time period. IFC did not offer the index portfolios until 2009. Prior to 2009, IFC did not manage client assets. There are certain limitations inherent in model results, particularly that model returns do not reflect trading in actual client accounts and do not reflect the impact that material economic and market factors may have had on the adviser’s decision-making had the adviser actually managed client funds. Unlike an actual performance record, hypothetical backtested performance results do not represent actual trading. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. In addition, simulated trading does not involve nor take into account financial risk and does not take into account that material and market factors may have impacted IFC’s decision making, all of which can adversely affect actual trading results. For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can also adversely affect markets in general or the implementation of any specific trading program. Hypothetical backtested performance does not represent actual performance, trading costs or the impact of taxes and should not be interpreted as an indication of such performance.
3. Hypothetical backtested performance also differs from actual performance because it is achieved through the retroactive application of model index portfolios designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable. Hypothetical backtested performance is calculated by using a software program that starts with the first day of a selected month and ends with the last day of a selected month. Whenever the term IFC Index Portfolio Value data is used, it is based on a starting value of one at the beginning of stated time period.
4. Hypothetical backtested performance results for IFC index portfolios are based on a buy and hold strategy, with annual rebalancing on the first of each year. It is important to understand that the assumption of first of the year annual rebalancing has an impact on the monthly returns reported for IFC Index Portfolios throughout the year. If there were monthly rebalancing instead, the monthly return would be calculated with the assumption that the portfolio is perfectly in balance at the beginning of each month. For annual rebalancing, the year-to-date and monthly return is calculated with the assumption that the portfolio is perfectly in balance only at the beginning of each year. In actual client portfolios, however, rebalancing occurs as needed, and such actions are dependent on both market conditions and individual client cash inflows and outflows, along with the cost impact of such transactions on the overall portfolio.
5. Hypothetical backtested performance results for index portfolios does include the reinvestment of dividends and capital gains and is shown net of IFC’s highest advisory fee of 0.9%. The fee of 0.075% is deducted from month end returns, unless stated otherwise. However, actual client advisory fees are deducted quarterly, in advance. Depending on the amount of assets under management and other factors, investment management fees may be less. IFC accepts no fees from investment product firms.
Performance Results and Composition of IFC Indexes and IFC Index Portfolios
6. Performance results for actual clients that invested in accordance with the IFC Index Portfolio Models will vary from the backtested performance due to the use of funds for implementation that differ from those in the index data, market conditions, investments cash flows, mutual fund allocations, changing index allocations over time, frequency and precision of rebalancing, not following IFC’s advice, retention of previously held securities, tax loss harvesting and glide path strategies, cash balances, lower advisory fees, varying custodian fees, and/or the timing of fee deductions. Tax liabilities will vary per investor and can result from various activities in taxable and tax-deferred accounts. These activities include, but are not limited to rebalancing of portfolios, any sale of securities, tax loss harvesting, interest, dividends and capital gains distributions from equity funds and individual securities in taxable accounts. There are also tax liabilities associated with distributions from tax-deferred accounts. Not all IFC clients follow IFC’s recommendations and depending on unique and changing client and market situations, IFC may customize the construction and implementation of the index portfolios for particular clients. IFC provides various index portfolio implementation strategies, such as the use of tax-managed mutual funds, global extended maturity bond funds, municipal bond funds, social or sustainable screens added to funds, diversified portfolios of various index fund providers, use of core funds or global asset allocation funds. These various implementations of IFC Index Portfolios will likely have risks and returns that vary from the IFC Index Portfolio Models. As the result of these and other variances, actual performance for client accounts have been and are likely to be materially different and may be less than from the results shown in the IFC Index Portfolio Models. Clients should consult their account statements for information about how their actual performance compares to that of the index portfolios and ask your IFC Wealth Advisor to explain any differences.
7. The indexes and mutual funds used in the IFC Indexes are IFC’s best estimate of an index or mutual fund that comes closest to the corresponding IFC Index objectives. Simulated index data is used for the period prior to the inception of the relevant live mutual fund data and a mutual fund expense ratio is deducted from the simulated index data. Live (or actual) mutual fund performance data is used after the date each mutual fund was added to the IFC Indexes. The IFC Indexes Times Series Construction goes back to January 1928, with an increasing diversification to international markets, emerging markets and real estate investment trusts as data became available.
8. The hypothetical backtested performance data is comprised of a combination of index data and mutual fund data. On certain occasions, changes to the construction of the index portfolios and the resulting historical data have occurred. Changes to the IFC and IFA Indexes are as follows: 1992-2000: IFA’s original Index Portfolios 20, 40, 60, and 80 were suggested by Dimensional Fund Advisors (DFA) in 1992 (investingforcatholics.com/pdfs/1992.pdf), as an example of globally diversified asset class portfolios, with moderate modifications in 1995 (investingforcatholics.com/pdfs/1995.pdf), to reflect the availability of mutual funds that tracked the emerging markets asset class. Index Portfolios between each of the above listed portfolios were created by IFA in 2000 by interpolating between the above portfolios. Index Portfolios 0, 5, 10, 15, 85, 90, 95 and 100 were created by IFA in 2000, as a lower and higher extension of the DFA 1992 risk and return line. There are numerous other changes that occurred from 2004 to present and they are all described in on investingforcatholics.com/disclosures/history/.
Information About Investing for Catholics and Index Fund Advisors
9. Investing for Catholics is a division of Index Fund Advisors, Inc., an SEC registered Investment Adviser. Information pertaining to IFC’s and IFA’s advisory operations, services, and fees is set forth in IFA’s current Form ADV Part 2 (Brochure) which is available upon request and at www.adviserinfo.sec.gov. The IFA and IFC investment strategy is based on principles generally known as Modern Portfolio Theory and the Fama and French Four Factor Model for Equities and Two Factor Model for Fixed Income. IFC Index portfolios are designed to provide substantial global diversification in order to reduce investment concentration and the resulting potential increased risk caused by the volatility of individual companies, indexes, or asset classes. IFC defines index funds as funds that follow a set of rules of ownership that are held constant regardless of market conditions. An important characteristic of an index fund is that its rules of ownership are not based on a forecast of short-term events or the mispricing of securities. Therefore, an investment strategy that is limited to the buying and rebalancing of a portfolio of index funds is often referred to as passive investing, as opposed to active investing. IFC is not paid any brokerage commissions, sales loads, 12b-1 fees, or any form of compensation from any mutual fund company or broker dealer. The only source of compensation from client investments is obtained from asset-based advisory fees paid by clients or tax or accounting related services. More information about advisory fees, expenses, mutual fund fees, and prospectuses for mutual funds can be found at http://www.investingforcatholics.com/fees/
10. IFC Index Portfolios will be implemented for clients by investing in an allocation of mutual funds that match the asset classes, mainly mutual funds from Dimensional Fund Advisors. All mutual funds carry risk and those risks can vary depending on the underlying investments and the fund’s investment strategy. IFC Index Portfolios are numbered from 0 to 100 based on the percentage allocation to equity indexes. Index portfolios with lower equity allocations will have less risk, as measured by standard deviation, than those with higher equity allocations. There is risk of loss in any securities investment, including the risk of loss of principal that the investor should be prepared to bear. Clients are provided with a copy of each mutual fund prospectus, which outlines the risks associated with the fund and should be read carefully. There is no guarantee that any IFC Index Portfolio will meet its investment objectives.
Standard Deviation Information
11. IFC utilizes standard deviation a quantification of risk. Standard deviation is a common measure of risk used by academics, analysts, portfolio managers and advisors. The higher the standard deviation the higher the risk. Standard deviation is calculated as the square root of the variance of the data from the average, which is a measure of the dispersion of a set of data from its average. If data points are far from the average, there is a higher deviation within the data set; thus, the more spread out the data, the higher the standard deviation. In finance, standard deviation is applied to the rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility or the uncertainty of expected returns. Among indexes of stocks, those with smaller companies, international companies and emerging market companies have had higher standard deviations than large companies in the U.S. in long time periods. Among bond indexes, those with longer durations and greater probabilities of default have had higher standard deviations in long time periods. However, it is not true that all indexes with higher standard deviations, such as small growth companies have had higher returns in long time periods. Annualized standard deviation is an approximation obtained by multiplying the monthly standard deviation by the square root of 12. Please note that the number computed from annual data may differ materially from the estimate obtained from monthly data. IFC has chosen this methodology because Morningstar uses the same method. In those charts and tables where the standard deviation of daily returns is shown, it is estimated as the standard deviation of monthly returns divided by the square root of 22.
Data Source Information
12. IFA licenses the use of data, in part, from Morningstar Direct, a third-party provider of stock market data. Where data is cited from Morningstar Direct, the following disclosures apply: ©2019 Morningstar, Inc. All rights reserved. The information provided by Morningstar Direct and contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. IFC Index Portfolios, times series, standard deviations, and returns calculations are derived using IFA software. IFA software applies rebalancing rules, monthly fee adjustments and creates time series construction of data. Our source data comes from many places including Dimensional Fund Advisors and Morningstar Direct software.
13. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION PROVIDED HEREIN OR ON THE MATERIAL PROVIDED. This document does not constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation or an offer to sell securities or investment advisory services. Any statements regarding market or other financial information is obtained from sources which we and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the user. All investments involve risk, including foreign currency exchange rates, political risks, market risk, different methods of accounting and financial reporting, and foreign taxes. Your use of these and all materials provided by IFA, including the www.ifa.com and www.investingforcatholics.com websites and the IFA app is your acknowledgement that you have read and understood the full disclaimer as stated above. Updated 5-30-2019. For additional updates please refer to ifcdisclosures.com.