Five ways we embrace investors' need for practicality

At Praxis Investment Management^TM, we take the responsibility to steward both our impact and our financial returns very seriously. This is the heart of stewardship investing. We do both on behalf of the investors who chose Praxis products.

Our focus is meeting the needs of everyday investors—people who have assets to steward over time for the benefit of their families and communities. Here are five ways we think about making sure our work is practical with respect to their financial needs and desire to align their investment dollars with their faith and other values.

1. Product design: Easy for investors to use in a larger portfolio
   Many investors allocate portfolios by style (e.g., Growth and Value), by size (e.g., Large Cap and Small Cap), and by geography (e.g., U.S. and international).
   
   Portfolio divisions along these lines have proven practical over decades and give investors and their advisors a convenient way to talk about making adjustments over time. Our approach is to provide products that slot into these existing categories.
   
   
2. Benchmarks: Well-known indexes + Seeking to limit tracking error
   Across both ETFs and mutual funds, all our domestic equity products are benchmarked to indexes maintained by the Center for Research in Security Prices (CRSP), an affiliate of the University of Chicago.
   
   The CRSP indexes offer several practical advantages.
   - Versus custom indexes developed by investment managers themselves: The CRSP benchmarks are well known and well understood. They are used by many asset managers, including Vanguard. CRSP has a substantial and rigorous index methodology document.
   - Versus other well-known third-party indexes: CRSP indexes are generally less expensive. Also, we like the way CRSP approaches rebalancing indexes—gradually, over multiple quarters, rather than all at once, annually. CRSP has a goal of minimizing unnecessary index turnover while maintaining style purity.
   
   
3. Reasonable costs
   In our experience, many investors are happy to pay slightly more for products that reflect their values and are aligned with their desire to promote positive impact. However, there’s no question that for everyday investors, costs matter. Our view is that costs must be reasonable for a product to qualify as “practical.”
   
   Praxis products cost more than index funds that simply seek to deliver exposure similar to that of, say, the S&P 500 Index. But they are lower than many funds in the faith-based space. Our ETFs, with an expense ratio of 0.36%, cost less than the average actively managed equity ETF.¹
   
   
4. Screening: Embracing the good in shades of gray
   We seek to avoid companies that don’t fit our values, but we don’t screen out every company with a minor involvement in an issue of concern. That is, we don’t exercise zero-tolerance screening.
   
   Instead, we focus on excluding companies that generate even small revenues from businesses that don’t fit with our values. Many long-term investors want to invest with their values, but also seek to achieve benchmark-like returns on a consistent basis—which would be very difficult if we applied zero-tolerance exclusions.
   
   Every company exists within shades of gray; none are perfect. We use corporate engagement and other impact strategies to promote real-world change through many of the “imperfect” companies we hold.
   
   
5. Multiple impact strategies: Finding more ways to promote good
   For investors seeking practical impact, we believe it’s crucial to go beyond screening out and to embrace ways to promote positive change.
   
   Our approach at Praxis is to utilize a range of impact strategies known collectively as ImpactX. There are seven distinct impact strategies, and the goals of the framework are to align investments with values, generate real-world impact and promote stewardship investing.