Market Insights


December 2019

By: Tony Minopoli, President & CIO of Knights of Columbus Asset Advisors

Regular readers know that I am somewhat of a political junkie! It’s tough to navigate the investment environment if you do not take time to understand politics in the context of its impact on the markets. I believe, we are in the middle of the absurd with the impeachment proceedings. The focus of my analysis is on the view from the market.

The market has seemingly discounted the entire affair in the scope of the hyper partisan politics of the day! That is, that Pelosi, Schiff & Company are on a track to level articles of impeachment against the President. This has largely been a political hearing where the Democrats are trying to frame President Trump as evil incarnate, and the Republicans’ defense is a collective shrug of the shoulders. In my view, while articles of impeachment seem inevitable, the countervailing force of a Senate trial seems destined to not find the President guilty.

I believe, conceptually, this should be a short trial in the Senate, but I keep secretly wondering (well not so secretly now!) if the Republicans will drag this out because the Democratic Senators running for President will need to be in Washington for the trial and thus kept off the campaign trail. Unfortunately, we are all worse off for the continuing gulf that exists between the two parties. Of even greater concern is that the gulf continues to widen and I’m not sure we have tested the ultimate limit of how far apart the two sides may be.

With the sideshow of politics covered, there is actually an economy and functional markets to worry about! The S&P 500 Index has returned 25.14% since the beginning of the year and was up 3.40% in November. This year has been a fairly straight line up in that the S&P set its low for the year on January 3rd! This year, based on Federal Reserve (“Fed”) action, the 10-Year Treasury hit its high of 2.79% on January 18th, hit a low of 1.46% on September 3rd and was at 1.78% at the end of the November. The financial markets have been focused on Fed action and a resolution of the China trade spat with gyrations in both directions driven by the most recent news.

GDP has been decelerating this year and consensus seems to be for 2.0% growth in 20201. Inflation remains tame with headline CPI standing at 1.8% and the core rate having a reading of 2.3% at the end of October. I suppose the most frustrating thing for us on the bond side is that the 10-Year Treasury is trading through inflation.

For my market life (which starts with the beginning of my time at EAI in 1987), 10-year Treasury bonds offered a premium to inflation. Otherwise, what’s the point! In fact, for much of my life, the 10-year Treasury provided a pretty nice cushion over inflation. I looked at the average monthly yield of the 10-year Treasury from January 1980 to October 2019 and, though bringing tears to my eyes, the yield was 6.0%. During the same time frame, inflation averaged 3.3% monthly so there was a term premium of 270 basis points, this is a bit more than the -11 basis points we have right now2. I promise this is not the start of another rant about the Fed and other Central Banks manipulating the yield curve, but this is what we are dealing with, and yes, I am still waiting for the “Great Unwind”. I’m ready, should it happen, I’m just not sure when or if it will because a move back to “rate normalization” would be more than modestly unsettling for the markets.

To wind up the month of November, we continued to see positive action in the stock market, earnings that were generally better than their muted expectations and no significant inflation on the horizon. We are acutely watching consumer confidence as the consumer is vitally important to the health of the U.S. economy and any concerns of political destabilization and more worrisome trade issues with China could have deleterious impacts on the market.

For many years, I have had an affinity for the Index of Leading Indicators, which is an index that combines 10 indices to forecast economic activity over the coming 6 to 12 months. The index is positive on a year-over-year basis with growth of 0.3%, but this is barely positive and much lower than the average year-over-year growth of 2.7% for the period of 3/31/2009 to 10/31/2019. I used this period as it coincides with the bottoming of the stock market after the Great Recession to look at the recent expansion. If you accept this as a premise, future growth seems to be decelerating. The focus on the very long expansionary period that we have experienced is well chronicled, but we are looking to see if there are signs of an impending slowdown. With the decelerating path of Leading Indicators, we are looking to see if the most recent months are indicative of a new (read recessionary) trend or if they are a slowdown in a continuing expansionary phase. Many pundits believe that the fourth quarter will be slow and that we will be continuing our tepid 2.0% GDP growth pattern. We will be acutely watching the economic releases of the coming months to see if we believe the path is slow but upward, or something leaning towards the next slowdown.

Until next month.



1 Source: https://www.conference-board.org/data/usforecast.cfm

2 Source: Bloomberg -as of the most recent data, October 2019.

Core Bond Fund

One Month
(as of 11/30/19)
YTD
(as of 11/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Core Bond Fund-I Shares 0.00% 9.75% 10.43% 3.46% 3.35%
Bloomberg Barclays US Aggregate Bond Index -0.05% 8.79% 10.30% 2.92% 3.03
Lipper Core Bond Fund Average -0.03% 8.71% 9.49% 2.80% 2.81%
Lipper Percentile Rank 17% 10%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 512 (1 Year) and 451 (3 Year).
Gross Expense Ratio 0.87%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 11/30/19)
YTD
(as of 11/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Limited Duration Fund-I Shares 0.10% 4.18% 4.44% 1.95% 1.65%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.00% 3.78% 4.64% 1.82% 1.62%
Lipper Short Investment Grade Debt Fund Average 0.05% 4.19% 4.26% 2.11% 1.83%
Lipper Percentile Rank 45% 58%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 364 (1 Year) and 318 (3 Year).
Gross Expense Ratio 0.84%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 11/30/19)
YTD
(as of 11/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Large Cap Growth Fund-I Shares 4.27% 27.07% -2.87% 12.75% 8.40%
Russell 1000 Growth Index 4.44% 32.40% 3.71% 16.89% 12.30%
Lipper Multi-Cap Growth Fund Average 4.73% 28.74% 1.09% 14.18% 9.33%
Lipper Percentile Rank 77% 68%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 566 (1 Year) and 506 (3 Year).
Gross Expense Ratio 1.10%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 11/30/19)
YTD
(as of 11/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Large Cap Value Fund-I Shares 3.72% 24.68% 2.01% 11.49% 7.29%
Russell 1000 Value Index 3.09% 23.15% 4.00% 9.43% 7.22%
Lipper Multi-Cap Value Fund Average 3.23% 21.79% -0.45% 8.45% 5.75%
Lipper Percentile Rank 29% 5%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 448 (1 Year) and 387 (3 Year).
Gross Expense Ratio 1.11%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 11/30/19)
YTD
(as of 11/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Small Cap Equity Fund-I Shares 3.81% 22.28% -9.16% 6.75% 4.40%
Russell 2000 Index 4.12% 22.01% -8.89% 8.23% 6.19%
Lipper Small Cap Fund Average 3.30% 20.53% -7.36% 7.00% 5.33%
Lipper Percentile Rank 67% 56%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 953 (1 Year) and 844 (3 Year).
Gross Expense Ratio 1.17%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 11/30/19)
YTD
(as of 11/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
International Equity-I Shares 0.54% 12.88% -3.68% 7.95% 4.28
FTSE All World Ex US Index 0.93% 17.10% -0.81% 6.78% 3.52%
Lipper International Multi-Cap Fund Average 1.18% 16.57% -2.92% 5.02% 2.29%
Lipper Percentile Rank 59% 4%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 415 (1 Year) and 359 (3 Year).
Gross Expense Ratio 1.39%, Net Expense Ratio 1.10%.

Global Real Estate

One Month
(as of 11/30/19)
YTD
(as of 11/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Global Real Estate-I Shares -0.97% 2.30% - - -
FTSE EPRA/NAREIT Developed Index -1.17% 1.33% - - -
Lipper Real Estate Average -0.93% 0.67% - - -
Lipper Percentile Rank - -

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Real Estate Classification. Number of Funds in Category: 261 (1 Year) and 226 (3 Year).
Gross Expense Ratio 1.43%, Net Expense Ratio 1.00%.

The performance data quoted represents past performance. Past performance is not a guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth less than their original cost and current performance may be higher or lower than the performance quoted. Investment performance does not reflect the redemption fee; if it was reflected, the total return would be lower than shown. For performance data current to the most recent month end, please call 1-844-KC-FUNDS.

Fund performance for the 1 year, 3 year, and Since Inception periods are annualized. The inception date for each of the funds is February 27, 2015

Knights of Columbus Asset Advisors LLC has contractually agreed to waive fees and/or to reimburse expenses to the extent necessary to keep Total Annual Fund Operating Expenses, (excluding interest, taxes, fund brokerage commissions, acquired fund fees and expenses and non-routine expenses) from exceeding the Net Expense Ratio for the respective Funds’ Institutional Shares average daily net assets until February 29, 2020.

Benchmark Definitions



Bloomberg Barclays Government/Credit 1-3 Year Index – benchmark for Limited Duration Fund
The U.S. Government/Credit Index is the non-securitized component of the U.S. Aggregate Index and was the first macro index launched by Barclays Capital. The U.S. Government/Credit Index includes Treasuries (i.e., public obligations of the U.S. Treasury that have remaining maturities of more than one year), government-related issues (i.e., agency, sovereign, supranational, and local authority debt), and corporates. The U.S. Government/Credit Index was launched on January 1, 1979 and is a subset of the U.S. Aggregate Index. The 1-3 year index includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of between 1 and 3 years and are publicly issued.

Bloomberg Barclays US Aggregate Bond Index – benchmark for Core Bond Fund
The Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency). Provided the necessary inclusion rules are met, US Aggregate eligible securities also contribute to the multi-currency Global Aggregate Index and the US Universal Index, which includes high yield and emerging markets debt. The US Aggregate Index was created in 1986.

FTSE All-World Ex-U.S. Index – benchmark for International Equity Fund
The FTSE All-World ex US Index is one of a number of indexes designed to help investors benchmark their international investments. The index comprises Large and Mid cap stocks providing coverage of Developed and Emerging Markets excluding the US. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization.

Russell 1000 Growth Index – benchmark for Large Cap Growth Fund
The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Growth Index is constructed to provide a comprehensive and unbiased barometer for the large-cap growth segment. The Index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect growth characteristics.

Russell 1000 Value Index – benchmark for Large Cap Value Fund
The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The Russell 1000 Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. The Index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics.

Russell 2000 Index – benchmark for Small Cap Fund
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

Consumer Price Index – The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services.

Indices are unmanaged and do not reflect the effect of fees. One cannot invest directly in an index.

Lipper Peer Group Definitions



Lipper Short Investment Grade Debt Classification – benchmark for Limited Duration Fund
Funds that invest primarily in investment-grade debt issues (rated in the top four grades) with dollar-weighted average maturities of less than three years. The Limited Duration Bond fund ranked 162 out of 364 funds measured for the one year ranking period and ranked 185 out of 315 funds measured for the three year ranking period as of September 30, 2019.

Lipper Core Bond Classification – benchmark for Core Bond Fund
Funds that invest at least 85% in domestic investment-grade debt issues (rated in the top four grades) with any remaining investment in non-benchmark sectors such as high-yield, global and emerging market debt. These funds maintain dollar-weighted average maturities of five to ten years. The Core Bond fund ranked 89 out of 512 funds measured for the one year ranking period and ranked 44 out of 451 funds measured for the three year ranking period as of September 30, 2019.

Lipper Multi-Cap Growth Classification – benchmark for Large Cap Growth Fund
Funds that, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-cap growth funds typically have above-average characteristics compared to the S&P SuperComposite 1500 Index. The Large Cap Growth fund ranked 433 out of 566 funds measured for the one year ranking period ranked and 347 out of 508 funds measured for the three year ranking period as of September 30, 2019.

Lipper Multi-Cap Value Classification – benchmark for Large Cap Value Fund
Funds that, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-cap value funds typically have below-average characteristics compared to the S∓P SuperComposite 1500 Index. The Large Cap Value fund ranked 130 out of 448 funds measured for the one year ranking period and ranked 19 out of 387 funds measured for the three year ranking period as of September 30, 2019.

Lipper Small-Cap Core Classification – benchmark for Small Cap Fund
Funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) below Lipper’s USDE small-cap ceiling. Small cap core funds have more latitude in the companies in which they invest. These funds typically have average characteristics compared to the S&P SmallCap 600 Index. The Small Cap Equity fund ranked 639 out of 953 funds measured for the one year ranking period and ranked 472 out of 844 funds measured for the three year ranking period as of September 30, 2019.

Lipper International Multi-Cap Core Classification – benchmark for International Equity Fund
Funds that, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. International multi-cap funds typically have characteristics compared to the MSCI EAFE Index. The International Equity fund ranked 246 out of 415 funds measured for the one year ranking period and ranked 16 out of 359 funds measured for the three year ranking period as of September 30, 2019.