July 2021 Market Insights
By: Tony Minopoli, President & CIO of Knights of Columbus Asset Advisors
We are very excited at Knights of Columbus Asset Advisors as our business continues to grow. Our mutual fund family has eclipsed total assets of $900 million, total third-party assets are well over $1 billion and our program of licensing our life insurance agents as Investment Advisor Representatives (“IARs”) continues to grow. We are in the midst of our “return to the office” planning and will start seeing more shining faces at the office after Labor Day.
The wall of worry for the market continues with many of the same themes occupying the minds of investors. U.S. Personal Consumption Expenditures, the Federal Reserve’s (“Fed’s”) preferred inflation measure, was last reported with annual growth of 3.4%. This is the highest year over year change since 1992 and combined with the Fed’s taper talk, in our view, indicates that we may see two rate hikes in 2022. If that occurs, it may cause investors to think that the stimulus driven economy might have to start giving way to the normally driven economy. To me, this feels like the day the training wheels came off my first 20-inch bicycle. In the 1970’s we didn’t have bicycle helmets or body armor, so you had to get that balance thing quickly or bruises and contusions were certainly in your future!
As I thought about the training wheels analogy, it got me to thinking about the removal of stimulus and the impact that could have on the markets. For investors with speculative positions that have lived on hyper low rates, these positions will likely be the first casualties of the Fed’s enhanced taper talk and perhaps even the first real taper action. However, in our view, there has been a significant pause in the market because Jerome Powell has gone all in, in fine “Texas Hold ‘Em” fashion, in his statement that the recent inflation we are seeing is transitory. The bond market, in our view, certainly believes this as we have seen interest rates in a fairly tight band after the initial move from 0.92% at the start of the year to the 2021 high of 1.74% on March 31st. We started June with a yield of 1.60% and have meandered as low as 1.43%; currently, rates are at 1.48% as I pen this essay on July 1st.
For those old enough to remember Mad Magazine and cover character Alfred E. Neuman, it does make you say, “What, me worry?”. As an investor you always worry; when things are going well it can’t possibly last and when things are not going well, you do wonder how much worse market conditions can get before things get better. I believe that is where we are today; what happens if the Fed is wrong? I am not advocating fighting the Fed as this has been a fool’s errand whenever attempted. I am also a fan of Jerome Powell and felt that he, as a “market guy”, was the right choice to lead the Fed at the time he was nominated. But what if inflation isn’t transitory?
Cost of Goods and Wages in Q3/Q4 of 2021
The two areas we are focusing on which might be impacted if the economy moves against the Fed’s thinking is in the price of stuff (goods) and wage costs. Bottlenecks in the supply chain have been causing waits for many different categories of goods. Copper and lumber prices are making construction costs increase and those little chips that are part of just about everything are also causing supply disruptions. I was speaking to a friend in the wholesale construction components business and he indicated that there are certainly people taking advantage of these supply disruptions to raise or keep prices higher than supply and demand would indicate. The supply chain issues were well chronicled during the height of Covid and those challenges remain, which may indicate transitory or real inflation pressures from a supply chain in desperate need of enhancement.
Labor and Employment Trends
With respect to labor, there has been significant news on the vast number of job openings and the question as to whether the enhanced stimulus is keeping people on the sidelines. I believe we are born economists, if we can earn an amount staying home that satisfies our needs and allows us not to work, many will choose not working. We are also seeing wage growth and if people need to be drawn from the sidelines and back into the labor pool, it may take higher wages to get this to occur. The transitory inflation story may hold together if the enhanced unemployment benefits are removed and those that can work return to the labor market. In any event wages and general prices are the two areas where we think the transitory inflation story could have some issues.
Capital Markets and Inflation Concerns
As we look at the capital markets, the words from the Fed initially stoked inflation fears. What happened next was fairly predictable, the curve fell and breakeven rates also fell. The cyclical and value names that had been performing well gave way to a rotation back to growth stocks and we saw the U.S. dollar increase and a slight weakening in commodity prices.
One of the other concerns, not mentioned above, for inflation is the impact of oil. The recent upward move in oil prices is, in my view, self-inflicted wound. President Biden cancelled the Keystone XL Pipeline and rescinded drilling rights on federal land. Quickly, the U.S. went from being an excess energy producer to needing to import energy once again. I am not anti-renewable energy at any level. However, most of the Teslas driving down the road are powered by electricity produced from natural gas. Unless we have a major breakthrough in renewables and battery storage, I believe, fossil fuels will be with us for decades. As we progress, we expect renewable energy to become cheaper and more abundant. We are not there yet and wishing won’t make it so. Given that energy prices are part of virtually everything, we need to see if sustained higher oil and gas prices are yet another potential force driving inflation higher.
We are really looking to see the July through September data comparisons to help us draw a more definitive conclusion on the transitory nature of the current bout of inflation.
Until next month.
Core Bond Fund
| One Month (as of 6/30/21) |
YTD (as of 6/30/21) |
1 Year (as of 6/30/21) |
5 Years (as of 6/30/21) |
Since Inception (as of 6/30/21) |
|
|---|---|---|---|---|---|
| Core Bond Fund-I Shares | 0.84% | -0.76% | 2.52% | 3.56% | 3.47% |
| Bloomberg Barclays US Aggregate Bond Index | 0.70% | -1.60% | -0.33% | 3.03% | 3.12% |
| Lipper Core Bond Fund Average | 0.77% | -1.09% | 1.62% | 3.32% | 3.19% |
| Lipper Percentile Rank | 22% | 34% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 500 (1 Year) and 416 (5 Year). Gross Expense Ratio 0.80%, Net Expense Ratio 0.50%.
Limited Duration Fund
| One Month (as of 6/30/21) |
YTD (as of 6/30/21) |
1 Year (as of 6/30/21) |
5 Years (as of 6/30/21) |
Since Inception (as of 6/30/21) |
|
|---|---|---|---|---|---|
| Limited Duration Fund-I Shares | -0.15% | 0.15% | 1.64% | 2.00% | 1.81% |
| Bloomberg Barclays Government/Credit 1-3 Year Index | -0.15% | 0.00% | 0.44% | 1.88% | 1.79% |
| Lipper Short Investment Grade Debt Fund Average | 0.01% | 0.47% | 2.73% | 3.20% | 2.04% |
| Lipper Percentile Rank | 67% | 70% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 374 (1 Year) and 293 (5 Year). Gross Expense Ratio 0.80%, Net Expense Ratio 0.50%
Large Cap Growth Fund
| One Month (as of 6/30/21) |
YTD (as of 6/30/21) |
1 Year (as of 6/30/21) |
5 Years (as of 6/30/21) |
Since Inception (as of 6/30/21) |
|
|---|---|---|---|---|---|
| Large Cap Growth Fund-I Shares | 4.92% | 10.15% | 35.73% | 19.53% | 14.47% |
| Russell 1000 Growth Index | 6.27% | 12.99% | 42.50% | 23.66% | 18.59% |
| Lipper Multi-Cap Growth Fund Average | 5.41% | 10.87% | 43.32% | 22.17% | 16.63% |
| Lipper Percentile Rank | 85% | 68% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 508 (1 Year) and 411 (5 Year). Gross Expense Ratio 1.00%, Net Expense Ratio 0.90%.
Large Cap Value Fund
| One Month (as of 6/30/21) |
YTD (as of 6/30/21) |
1 Year (as of 6/30/21) |
5 Years (as of 6/30/21) |
Since Inception (as of 6/30/21) |
|
|---|---|---|---|---|---|
| Large Cap Value Fund-I Shares | -1.19% | 20.12% | 44.43% | 13.39% | 9.65% |
| Russell 1000 Value Index | -1.15% | 17.05% | 43.68% | 11.87% | 9.52% |
| Lipper Multi-Cap Value Fund Average | -1.16% | 19.00% | 47.78% | 12.34% | 9.20% |
| Lipper Percentile Rank | 58% | 29% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 642 (1 Year) and 519 (5 Year). Gross Expense Ratio 1.03%, Net Expense Ratio 0.90%.
Small Cap Fund
| One Month (as of 6/30/21) |
YTD (as of 6/30/21) |
1 Year (as of 6/30/21) |
5 Years (as of 6/30/21) |
Since Inception (as of 6/30/21) |
|
|---|---|---|---|---|---|
| Small Cap Equity Fund-I Shares | 2.07% | 17.74% | 58.80% | 13.51% | 9.41% |
| Russell 2000 Index | 1.94% | 17.54% | 62.03% | 16.47% | 11.91% |
| Lipper Small Cap Fund Average | -0.66% | 20.63% | 60.78% | 13.36% | 9.99% |
| Lipper Percentile Rank | 58% | 47% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 859 (1 Year) and 710 (5 Year). Gross Expense Ratio 1.14%, Net Expense Ratio 1.05%.
International Equity Fund
| One Month (as of 6/30/21) |
YTD (as of 6/30/21) |
1 Year (as of 6/30/21) |
5 Years (as of 6/30/21) |
Since Inception (as of 6/30/21) |
|
|---|---|---|---|---|---|
| International Equity-I Shares | -1.71% | 12.75% | 44.87% | 13.55% | 8.58% |
| FTSE All World Ex US Index | -0.64% | 9.59% | 36.79% | 11.66% | 7.30% |
| Lipper International Multi-Cap Fund Average | -1.16% | 9.59% | 33.87% | 9.91% | 6.06% |
| Lipper Percentile Rank | 3% | 1% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 353 (1 Year) and 275 (5 Year). Gross Expense Ratio 1.33%, Net Expense Ratio 1.01%.
Real Estate Fund
| One Month (as of 6/30/21) |
YTD (as of 6/30/21) |
QTD (as of 6/30/21) |
1 Year (as of 6/30/21) |
Since Inception (as of 6/30/21) |
|
|---|---|---|---|---|---|
| Real Estate-I Shares | 4.54% | 16.12% | 9.67% | 33.52% | 11.41% |
| FTSE Nareit Equity REITs Index | 2.61% | 21.96% | 12.02% | 38.02% | 6.33% |
| Lipper Real Estate Average | 2.74% | 19.95% | 11.34% | 35.24% | 8.96% |
| Lipper Percentile Rank | 65% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Real Estate Number of Funds in Category: 246 (1 Year) Gross Expense Ratio 1.34%, Net Expense Ratio 1.00%.
Long-Short Equity Fund
| One Month (as of 6/30/21) |
YTD (as of 6/30/21) |
QTD (as of 6/30/21) |
1 Year (as of 6/30/21) |
Since Inception (as of 6/30/21) |
|
|---|---|---|---|---|---|
| Long-Short Equity – I Shares | -3.03% | 7.87% | 0.84% | 5.96% | -2.47% |
| HFRX Equity Market Neutral Developed Index | -0.88% | 2.47% | -0.05% | 3.65 | -1.41% |
| Lipper Long-Short Average | -0.07% | 9.26% | 3.95% | 21.51% | 10.58% |
| Lipper Percentile rank | 84% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Alternative Long/Short Equity Number of Funds in Category: 234 (1 Year) Gross Expense Ratio 2.17%, Net Expense Ratio 1.73%.
U.S. All Cap Index Fund
| One Month (as of 6/30/21) |
YTD (as of 6/30/21) |
QTD (as of 6/30/21) |
1 Year (as of 6/30/21) |
Since Inception (as of 6/30/21) |
|
|---|---|---|---|---|---|
| U.S. All Cap Index – I Shares | 2.80% | 16.24% | 8.68% | 46.57% | 25.89% |
| Knights of Columbus U.S. All Cap Index | 2.76% | 16.42% | 8.67% | 47.16% | 26.60% |
| Lipper Large Blend Average | 1.74% | 14.71% | 7.40% | 41.56% | 21.73% |
| Lipper Percentile rank | 18% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Core Number of Funds in Category: 650 (1 Year) Gross Expense Ratio 1.46%, Net Expense Ratio 0.25%.
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, 5 year, and Since Inception periods are annualized. The inception date for Limited Duration, Core Bond, Large Cap Growth, Large Cap Value, Small Cap, and International are is February 27, 2015. 1 year and 5 year fund performance is not available for the Real Estate Fund, Long/Short Equity, or the U.S. All Cap Index since the inception dates of the funds are September 30, 2019, December 21, 2019, and December 31, 2019, respectively. Lipper percentile rank is omitted for the Real Estate Fund, Long/Short Equity, and U.S. All Cap Fund given performance is not yet available.
Effective July 21, 2020, the Knights of Columbus Real Estate Fund underwent a change in its Investment Objective and a name change to reflect the new investment strategy as detailed in The Funds’ Prospectus update of July 20, 2020. The Fund was formerly known as Knights of Columbus Global Real Estate Fund. Results prior to July 20, 2020, reflect the performance of the Fund's previous strategy.
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 28, 2021
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.
FTSE Nareit Equity REITs Index – benchmark for Real Estate Fund – The FTSE Nareit Equity REITs Index contains all Equity REITs not designated as Timber REITs or Infrastructure REITs. Prior to December 2010, the index included Timber REITs and Infrastructure REITs.
HFRX Equity Market Neutral Index – benchmark for Long/Short Equity Fund HFRX Equity Market Neutral Index The HFRX Equity Market Neutral Index employs sophisticated quantitative techniques of analyzing price data to ascertain information about future price movement and relationships between securities, select securities for purchase and sale. These can include both Factor-based and Statistical Arbitrage/Trading Strategies.
Knights of Columbus U.S. All Cap Index – benchmark for U.S. All Cap Index Fund Knights of Columbus U.S. All Cap Index Adheres to the United States Conference of Catholic Bishops’ Socially Responsible Investment Guidelines. Consists of all common stocks and real estate investment trusts in the Solactive US Broad Market Index excluding companies that are determined by Institutional Shareholder.
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 – peer group 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 251 out of 374 funds measured for the one year ranking period and ranked 206 out of 293 funds measured for the five year ranking period as of June 30, 2021.
Lipper Core Bond Classification – peer group 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 112 out of 500 funds measured for the one year ranking period and ranked 143 out of 416 funds measured for the five year ranking period as of June 30, 2021.
Lipper Multi-Cap Growth Classification – peer group 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 434 out of 508 funds measured for the one year ranking period ranked and 280 out of 411 funds measured for the five year ranking period as of June 30, 2021.
Lipper Multi-Cap Value Classification – peer group 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 375 out of 642 funds measured for the one year ranking period and ranked 151 out of 519 funds measured for the five year ranking period as of June 30, 2021.
Lipper Small-Cap Core Classification – peer group 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 496 out of 859 funds measured for the one year ranking period and ranked 337 out of 710 funds measured for the five year ranking period as of June 30, 2021.
Lipper International Multi-Cap Core Classification – peer group 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 9 out of 353 funds measured for the one year ranking period and ranked 4 out of 275 funds measured for the five year ranking period as of June 30, 2021.
Lipper Real Estate Classification – peer group for Real Estate Fund
Funds invest primarily in equity securities of domestic and foreign companies engaged in the real estate industry. The Real Estate fund ranked 161 out of 246 funds measured for the one year ranking period as of June 30, 2021.
Lipper Alternative Long/Short Equity Classification – peer group for Long/Short Equity Fund
Funds that employ portfolio strategies combining long holdings of equities with short sales of equities, equity options or equity index options. The funds may be either net long or net short, depending on the portfolio manager’s view of the market. The Long/Short fund ranked 196 out of 234 funds measured for the one year ranking period as of June 30, 2021.
Lipper Multi-Cap Core Classification – peer group for U.S. All Cap Index 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. The U.S. All Cap Index fund ranked 117 out of 650 funds measured for the one year ranking period as of June 30, 2021.