Skip to main content

Performance Methodology

Ethical Capital presents performance using actual results from representative client accounts. This approach prioritizes transparency over the complex adjustments required by large-scale composites.

Single Account Methodology

As of May 2023, performance figures for the Growth and Income strategies reflect the actual results of two individual fee-paying client accounts.

Rationale

  • Inception History: We select accounts opened during the strategy’s first month to provide the longest continuous track record.
  • Minimal Distortion: These accounts have experienced no significant inflows or outflows. This eliminates the “noise” introduced by time-weighted adjustments and reflects the pure execution of the strategy.
  • Real-World Net Returns: Figures include all actual 1% annual advisory fees and transaction costs.

Calculation Implementation

We use industry-standard Time-Weighted Return (TWR) and Money-Weighted Return (XIRR), implemented in our public data pipeline.

Time-Weighted Return (TWR)

TWR measures the manager’s ability to generate returns independent of cash flows. We use daily chain-linking:

# Simplified Logic (research/scripts/compute_performance.py)
def compute_twr(daily_values, cash_flows):
    twr = 1.0
    for day in periods:
        hpr = (V_end - V_start - CF) / (V_start + max(CF, 0))
        twr *= (1 + hpr)
    return twr - 1.0

Money-Weighted Return (XIRR)

XIRR reflects the actual return experienced by the investor, solving for the rate where the Net Present Value of all cash flows is zero.

Benchmarks

We compare performance to the MSCI ACWI (Net) Index (Growth) and a 60/40 Bloomberg US Agg/MSCI ACWI blend (Income). Note: Benchmarks do not reflect advisory fees or ethical constraints. Our reported figures are net of all fees.

Philosophy: Concentration as a Discipline

We limit our flagship strategy to 15–25 stocks. This is a deliberate rejection of “diworsification.”

  1. Diminishing Returns of Diversification: Statistical risk reduction plateaus after approximately 30 holdings. Adding more names Dilutes analytical depth without providing meaningful risk protection.
  2. Ownership vs. Speculation: In a 20-stock portfolio, holdings are recognizable line items on a statement, not abstract numbers in a fund. This transparency fosters the conviction required to remain invested through market cycles.
  3. Tradition: This high-conviction approach mirrors the professional investment standards of the mid-20th century—focusing on businesses we intend to own indefinitely.

Past performance is not indicative of future results. Investment advisory services offered through Ethical Capital LLC, a state-registered investment adviser (Utah). Registration does not imply a certain level of skill or training.