September 30, 2022

Getting To Know FDLS (Inspire Fidelis Multi Factor ETF)

In preparation for the launch of the Inspire Fidelis Multi-Factor ETF (NYSE: FDLS), Inspire Portfolio Manager, Tim Schwarzenberger, sat down with the FDLS index managers, Dan and Jake Wallick of Wallick Investments, to better understand their index methodology.

In preparation for the launch of the Inspire Fidelis Multi-Factor ETF (NYSE: FDLS), Inspire Portfolio Manager, Tim Schwarzenberger, sat down with the FDLS index managers, Dan and Jake Wallick of Wallick Investments, to better understand their index methodology.

Wallick Investments, LLC, is a firm founded in 2005 that focuses on strategic moral investing. Wallick Investments is a nationally ranked registered investment advisory firm, specializing in separately managed accounts (SMA’s). Wallick designs and manages separate account portfolios using thoroughly researched proprietary processes that are repeatable, systematic, unemotional, and have stood the test of time.

Q&A

Tim: First off, what is factor-based investing and why are you an advocate for it?

Dan: Factor based investing is a quantitative, disciplined process for selecting stocks for inclusion in a portfolio based on pre-defined factors or characteristics that have shown evidence of adding alpha. Part of the reason why we are such evangelists for multi-factor investing is that the Russell 1000 Comprehensive Factor Index has been able to consistently outperform the cap-weighted Russell 1000 over the years.

Disclaimer: Alpha, is defined as the excess return on an investment relative to the return on a benchmark index.

Tim: That’s very compelling data.  Is there other evidence or academic research that validates factor-based investing?

Dan: Much of the research on factor-based investing has been published primarily in the Financial Analysts Journal and the Journal of Portfolio Management. On our website we have links to several of these articles submitted by authors from firms such as Research Affiliates, BNP Paribas, S&P Dow Jones, JP Morgan, Robecco Asset Management and Blackrock. I must also give significant credit to James O’Shaugnessey whose book “What Works on Wall Street” provided me with my first exposure to factor-based investing.

Tim: Why would you say you are launching the WI Fidelis Multi-Factor Index?  

Dan: Most importantly we launched this index to respond well to God’s call to be good stewards. We have been running faith and factor-based strategies for a long time now and we want to help other investors, especially biblically responsible investors, do the same. This index and subsequent product launch allows more investors to access this strategy. It is our hope that the WI Fidelis Index can become a standard for benchmarking faith-based and factor-based equity performance.

Tim: Let’s pivot to the index methodology. Can you give an overview of the investment screening process?

Jake: We first start with the universe of securities listed on a major US stock exchange, and then narrow the list to those that: have a Positive Inspire Impact Score, are not Limited Partnerships or State-owned with a market cap of $250M+, and are not in the bottom 20% for Value, Growth, or Momentum (VGM). But we only pick from the ones that are in the top 60% for expected earnings surprise and for combined VGM. After the universe is narrowed from those criteria, percentile scores for each stock are calculated based on each sub-factor under the VGM categories. The final Fidelis score is the aggregate sum of each factor percentile score multiplied by its predetermined weight.

From the stocks within the top 20% for market capitalization, we choose 40 stocks with the highest Fidelis Scores, subject to sector and industry constraints. Finally, the next 60 stocks, regardless of market cap, with the highest Fidelis Score subject to the industry and sector constraints are then added to complete the list of constituent stocks.

Tim: How were the sub-factor weights decided, and do those ever change?

Jake: Our factor weights are static and will not change to ensure we have a virtually equal weighting to each of the major factor categories – Value, Quality, and Momentum. Each subfactor and weight used is based on our confidence in its ability to add consistent excess risk adjusted return.

Tim: What specific risk controls have you put in place for managing the index?

Dan: With on-going market volatility this is an important question. There are rules in place to ensure the Index maintains diversified sector and Industry exposure. The WI Fidelis Multi-Factor Index has exposure to 11-18 sectors and 40 or more industries. In addition to pre-defined factors, factor weights and sector and industry diversification rules, there is also a limit to larger cap exposure to between 40% and 75% and limit international exposure to no more than 35%. Together these well-defined controls help us avoid the emotional temptations to chase performance or the latest investment fad. Sector allocations are static with an allowance for the index to adjust only if a sector is more than 15% off the equally weighted S&P 500 allocations.

Disclaimer: Diversification does not ensure profits or prevent losses.

Tim: What makes your index different from the other factor indexes out there?

Jake: With 8 value factors, 16 quality factors and 7 momentum factors, we believe the Fidelis Multi Cap Multi Factor Index’s multi-dimension diversification is more comprehensive than the other multi-factor strategies offered by those we would consider peers.

The referenced indices are shown for informational purposes only and are not reflective of any investment.  Keep in mind investors cannot directly invest in an index.

Tim: Why is it important to use a more comprehensive list of factors and can you have too much diversification of factors?

Dan: Using a more comprehensive list of factors helps ensure better consistency. However, we only include factors with risk adjusted expectations above the overall market.

We believe over-diversification can happen when unrewarded factors are included in a portfolio. However, each of the factors that we are using have standalone characteristics that we think have the potential to lead to excess risk adjusted returns and we are confident of their additive properties as part of our index.

Tim: With what you’ve just explained for the index, what kind of turnover do you expect to see in this index?

Dan: Since after each quarterly rebalance and reconstitution the index holdings are reset to what we believe to be the best combination of 100 faith-based and multi-factor securities, we expect turnover to be close to 100%. But actual turnover will be dependent upon how long a company can continue to hold a positive Inspire Impact Score and a high overall Fidelis Multi-Factor Score.  

Conclusion

The Fidelis Multi-Factor ETF (FDLS) seeks to closely track the WI Fidelis Multi-Cap, Multi-Factor Index.  With the ETF, investors will get diversified factor, sector, market cap, and geographic exposure, all in a single fund. Given its broad diversification, we believe FDLS could be considered as a standalone equity investment or a compelling complement to a diversified portfolio (e.g., 5-20% of global portfolio).

This launch provides a new option for investors and advisors looking to incorporate factor investing into their biblically aligned portfolios. For more information on the Inspire Fidelis Multi-Factor ETF, visit www.inspireetf.com/FDLS.

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For Financial Professional Use Only.

Important Risk Information

Advisory services are offered through Inspire Investing, LLC, a Registered Investment Adviser with the SEC. All expressions of opinion are subject to change without notice and are provided for informational purposes only. Nothing in this article should be construed as an offer, solicitation, recommendation, or endorsement of any particular security, strategy, or investment product. Investing involves risk, including the potential loss of principal. Please consult your financial advisor before making any investment decision. Inspire Investing integrates biblical principles into its investment philosophy through a Biblically Responsible Investing (BRI) approach. This value-based methodology reflects Inspire's interpretation of Scripture and may not align with the views or beliefs of all investors.
Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
Academic studies referenced in this article are used for illustrative purposes and reflect the views of the authors. Inspire does not represent that such research supports any specific investment strategy or outcome. The inclusion of academic references does not constitute endorsement of Inspire's investment products by the academic institutions or authors.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A.
Certain statements may include forward-looking information based on current beliefs, expectations, and assumptions. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Inspire undertakes no obligation to update or revise any forward-looking statements.
Information and data referenced in this article may be obtained from third-party sources believed to be reliable but Inspire makes no representation as to their accuracy or completeness. All trademarks and service marks are the property of their respective owners.
This content is provided for educational and informational purposes only and should not be considered personalized investment advice. Inspire does not provide legal, tax, or accounting advice. Please consult your own advisor regarding your specific situation.

There is no guarantee that the Funds will achieve their objective, generate positive returns, or avoid losses. Before investing, consider the funds’ investment objectives, risks, charges and expenses. To obtain a prospectus which contains this and other information, call 877.658.9473, or visit www.inspireetf.com. Read it carefully. The Inspire ETFs are distributed by Foreside Financial Services LLC., Member FINRA.  Inspire and Foreside Financial Services LLC are not affiliated. Copyright © 2025 Inspire. All rights reserved.

The Fund invests its assets in securities with an Inspire Impact Score® of zero or higher. As a result of its strategy, the Fund's exclusion of securities of certain issuers for nonfinancial reasons may cause the Fund to forgo some market opportunities available to funds that do not use these criteria. The value of investments in larger companies may not rise as much as smaller companies, or larger companies may be unable to respond quickly to competitive challenges, such as changes in technology and consumer tastes.

Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.

The value of investments in larger companies may not rise as much as smaller companies, or larger companies may be unable to respond quickly to competitive challenges, such as changes in technology and consumer tastes.  

The Fund is not actively managed and the Adviser will not sell shares of an equity security due to current or projected underperformance of a security, industry or sector, unless that security is removed from the Index or the selling of shares of that security is otherwise required upon a rebalancing of the Index as addressed in the Index methodology.  

Inspire Investing, LLC and Wallick Investments, LLC are not affiliated.  

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