Market Insights
March 2021
By: Tony Minopoli, President & CIO of Knights of Columbus Asset Advisors
And then there were three! We have now added the Johnson & Johnson single dose COVID vaccine to the arsenal of the Moderna, Inc. and Pfizer BioNTech offerings. The availability of additional doses from these three approved vaccines should allow for even greater distribution. The scaled distribution, starting with the oldest Americans and those in nursing care, have helped drive down both infection rates as well as death rates. We are hopeful that the declining rate of deaths and infections will lead to a greater re-opening of the economy and our ability to move forward from this insidious virus.
March ’21 Economic Analysis
So where are we with respect to the economy? As regular readers know, I always look at employment as my starting point. The reason for this is that our economy is driven by consumer spending. As of the last reading on January 31, 2021, unemployment stood at 6.3%, a far cry from the 14.8% level we saw in April 2020. Underemployment has also grinded lower from 22.9% in April to 11.1% at the end of January 2021. While these numbers seem quite positive, they need to be taken in light of the Labor Participation rate, which currently stands at 61.4%. This is an improvement from the 60.2% we saw last April, but a full 2 percentage points below the reading of January 2020. It is reasonable to opine that if the labor force was at the same level as this point last year, unemployment is over 8%. Still better than the worst of the first thrust of COVID, but not an all clear sign that the labor market has healed.
The growth of M2 is another factor that has been grabbing attention as of late. As you may recall from an economics class, M2 is a measure of money supply that includes cash, checking deposits, large time deposits, institutional money market funds and other easily convertible near money. It is a broader measure of the money supply than M1 which includes only cash and checking deposits. At the beginning of February, M2 stood at $19.4 trillion, about $4 trillion more than at his time last year. Even for our Government $4 trillion still is a big number. The perspective I have been focusing on is the $4 trillion of M2 growth as it represents about 20% of our annual GDP. That is a very big number. As I remember studying macroeconomics, if all of that money was focused on consumption, either the supply of aggregate goods would need to materially increase or our prices would need to rise in order to maintain equilibrium. It is highly unlikely that we will see all of that money hit the economy at once. However, it is certainly one of the reasons that people are starting to discuss inflation.
I have also been watching commodity prices and we have seen oil rise from about $53 per barrel to over $60 today and this represents a price increase of over 13%. In my view, the Biden Administration’s cancellation of the XL Pipeline, as well as drilling leases on federally owned lands, is a certain contributor. I wonder when someone in the Administration will recognize that Canadian oil, in my opinion, will still come into the U.S. and will be brought in via truck or rail. I need someone to explain to me how diesel locomotives and tractor trailers are greener or safer than a pipeline. I will leave this to others, but I do find it amusing. The S&P Goldman Sachs Commodity Index is a commonly used index that gauges commodity prices. The index is heavily weighted towards energy with 62% of the benchmark in energy. The remainder of the index is comprised of 11% in industrial metals, 5% precious metals, 16% in agriculture and 7% in livestock. As of March 1, 2021, the index rose 24.4% in the last 3 months and is up nearly 16.5% since the beginning of the year.
Potential Inflation Concerns
The inflation concerns for me have been getting louder as we see a glut in savings, the virus becoming more contained, the employment picture slowly getting better and Congress, appears ready to launch the next wave of stimulus payments. I know it would be too hard to be more granular on stimulus, meaning that it’s difficult for our legislators to narrowly focus on those that have lost a paycheck or perhaps could use a boost in unemployment compensation as they have been out of work quite some time. It appears to me that in this case where the House and Senate desire is to be speedy means that we have to fire up the helicopters to spread the money around. I am personally more concerned that the nascent seeds of inflation have been planted than some of the other Wall Street pundits are. However, we have had false starts on inflation before and I want to see more evidence that inflation has truly taken hold.
Beyond inflation, we have been watching other key economic indicators to provide clues on economic health. Industrial production fell 12.7% last April and has grown every month, except a 0.1% decline in September. On a year over year basis, Industrial Production is down 1.8% versus -16.3% last April. Capacity Utilization of factories is higher now than last March before COVID really took over. Orders for Durable Goods are also positive recently and on a year over year basis. The only significant chink in the economy’s armor is the continued weakness in travel, leisure, and hospitality. These are the working people, in my opinion, that are truly deserving of another round of stimulus. In any event, the economy is showing improvement in a number of areas.
Future Market Trends and Insights
Where do we go from here? At my core, I am an analyst and I like to follow the market research data. The continued improvement in our fight against the virus is the biggest factor on the path of the economy. That said, we need to recognize that we may encounter a divergent path for the economy and the capital markets. Since April 1, 2020 through today, the S&P 500 has returned over 60%. It is entirely possible in my view that the coming economic rebound is priced into the stock market. It is for this reason; we always recommend reviewing portfolio levels and rebalancing to your targets. At the same time, if something has happened to alter your circumstances, either positively or negatively, we believe it is always good to revisit your asset allocation targets in light of your new situation. No investor ever went broke taking profits.
We are encouraged by the recent news on vaccines and the declining impact of the virus. We just want to see more evidence of the same and we are very focused on economic progress from here.
Until next month’s market insights report.
Core Bond Fund
| One Month (as of 02/28/21) |
YTD (as of 02/28/21) |
1 Year (as of 12/31/20) |
5 Years (as of 12/31/20) |
Since Inception (as of 12/31/20) |
|
|---|---|---|---|---|---|
| Core Bond Fund-I Shares | - 1.51% | - 1.88% | 7.20% | 4.72% | 3.91% |
| Bloomberg Barclays US Aggregate Bond Index | -1.44% | -2.15% | 7.51% | 4.44% | 3.68% |
| Lipper Core Bond Fund Average | -1.35% | -1.91% | 8.24% | 4.59% | 3.66% |
| Lipper Percentile Rank | 82% | 43% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 505 (1 Year) and 414 (5 Year). Gross Expense Ratio 0.84%, Net Expense Ratio 0.50%.
Limited Duration Fund
| One Month (as of 2/28/21) |
YTD (as of 2/28/21) |
1 Year (as of 12/31/20) |
5 Years (as of 12/31/20) |
Since Inception (as of 12/31/20) |
|
|---|---|---|---|---|---|
| Limited Duration Fund-I Shares | 0.00% | 0.10% | 3.17% | 2.29% | 1.94% |
| Bloomberg Barclays Government/Credit 1-3 Year Index | -0.03% | 0.00% | 3.33% | 2.21% | 1.94% |
| Lipper Short Investment Grade Debt Fund Average | -0.04% | 0.12% | 3.57% | 2.58% | 2.14% |
| Lipper Percentile Rank | 67% | 66% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 369 (1 Year) and 293 (5 Year). Gross Expense Ratio 0.82%, Net Expense Ratio 0.50%
Large Cap Growth Fund
| One Month (as of 02/28/21) |
YTD (as of 02/28/21) |
1 Year (as of 12/31/20) |
5 Years (as of 12/31/20) |
Since Inception (as of 12/31/20) |
|
|---|---|---|---|---|---|
| Large Cap Growth Fund-I Shares | 0.36% | 0.90% | 33.82% | 16.72% | 13.90% |
| Russell 1000 Growth Index | -0.02% | -0.76% | 38.49% | 21.00% | 17.83% |
| Lipper Multi-Cap Growth Fund Average | 2.89% | 2.21% | 42.83% | 18.84% | 15.69% |
| Lipper Percentile Rank | 58% | 65% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 507 (1 Year) and 406 (5 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 0.90%.
Large Cap Value Fund
| One Month (as of 2/28/21) |
YTD (as of 2/28/21) |
1 Year (as of 12/31/20) |
5 Years (as of 12/31/20) |
Since Inception (as of 12/31/20) |
|
|---|---|---|---|---|---|
| Large Cap Value Fund-I Shares | 5.61% | 5.86% | -0.28% | 9.13% | 7.10% |
| Russell 1000 Value Index | 6.04% | 5.07% | 2.80% | 9.74% | 7.43% |
| Lipper Multi-Cap Value Fund Average | 6.19% | 5.94% | 2.72% | 8.91% | 6.51% |
| Lipper Percentile Rank | 68% | 43% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 581 (1 Year) and 462 (5 Year). Gross Expense Ratio 1.06%, Net Expense Ratio 0.90%.
Small Cap Fund
| One Month (as of 2/28/21) |
YTD (as of 2/28/21) |
1 Year (as of 12/31/20) |
5 Years (as of 12/31/20) |
Since Inception (as of 12/31/20) |
|
|---|---|---|---|---|---|
| Small Cap Equity Fund-I Shares | 8.61% | 10.42% | 13.65% | 9.69% | 7.21% |
| Russell 2000 Index | 6.23% | 11.58% | 19.96% | 13.26% | 9.91% |
| Lipper Small Cap Fund Average | 8.85% | 11.75% | 9.24% | 9.89% | 7.23% |
| Lipper Percentile Rank | 28% | 51% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 899 (1 Year) and 726 (5 Year). Gross Expense Ratio 1.14%, Net Expense Ratio 1.05%.
International Equity Fund
| One Month (as of 2/28/21) |
YTD (as of 2/28/21) |
1 Year (as of 12/31/20) |
5 Years (as of 12/31/20) |
Since Inception (as of 12/31/20) |
|
|---|---|---|---|---|---|
| International Equity-I Shares | 2.71% | 3.49% | 13.79% | 10.39% | 7.13% |
| FTSE All World Ex US Index | 2.03% | 2.26% | 11.52% | 9.48% | 6.26% |
| Lipper International Multi-Cap Fund Average | 2.26% | 1.46% | 8.09% | 7.08% | 4.71% |
| Lipper Percentile Rank | 9% | 1% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 370 (1 Year) and 280 (5 Year). Gross Expense Ratio 1.39%, Net Expense Ratio 1.10%.
Real Estate Fund
| One Month (as of 02/28/21) |
YTD (as of 02/28/21) |
QTD (as of 12/31/20) |
1 Year (as of 12/31/20) |
Since Inception (as of 12/31/20) |
|
|---|---|---|---|---|---|
| Real Estate-I Shares | 1.43% | 0.61% | 11.23% | -0.91% | 3.22% |
| FTSE Nareit Equity REITs Index | 4.01% | 4.12% | 11.57% | -8.00% | -7.00% |
| Lipper Real Estate Average | 3.86% | 3.05% | 13.49% | -8.18% | -5.12% |
| Lipper Percentile Rank | 15% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Real Estate Number of Funds in Category: 246 (1 Year) Gross Expense Ratio 1.43%, Net Expense Ratio 1.00%.
Long-Short Equity Fund
| One Month (as of 2/28/21) |
YTD (as of 2/28/21) |
QTD (as of 12/31/20) |
1 Year (as of 12/31/20) |
Since Inception (as of 12/31/20) |
|
|---|---|---|---|---|---|
| Long-Short Equity – I Shares | 2.70% | 2.47% | 3.97% | -11.05% | -10.13% |
| HFRX Equity Market Neutral Developed Index | 0.22% | 1.21% | 3.15% | -3.92 | -4.24% |
| Lipper Long-Short Average | -0.81% | -1.19% | 1.76% | 7.47% | 7.48% |
| Lipper Percentile rank | 89% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Alternative Long/Short Equity Number of Funds in Category: 241 (1 Year) Gross Expense Ratio 2.03%, Net Expense Ratio 1.70%.
U.S. All Cap Index Fund
| One Month (as of 2/28/21) |
YTD (as of 2/28/21) |
QTD (as of 12/31/20) |
1 Year (as of 12/31/20) |
Since Inception (as of 12/31/20) |
|
|---|---|---|---|---|---|
| U.S. All Cap Index – I Shares | 3.77% | 3.51% | 15.50% | 21.52% | 21.52% |
| Knights of Columbus U.S. All Cap Index | 3.90% | 3.63% | 15.76% | 22.31% | 22.25% |
| Lipper Large Blend Average | 3.45% | 3.04% | 14.20% | 16.56% | 16.56% |
| Lipper Percentile rank | 21% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Core Number of Funds in Category: 660 (1 Year) Gross Expense Ratio 1.22%, 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.
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 164 out of 371 funds measured for the one year ranking period and ranked 187 out of 296 funds measured for the five year ranking period as of September 30, 2020.
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 381 out of 505 funds measured for the one year ranking period and ranked 152 out of 411 funds measured for the five year ranking period as of September 30, 2020.
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 200 out of 502 funds measured for the one year ranking period ranked and 207 out of 395 funds measured for the five year ranking period as of September 30, 2020.
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 260 out of 574 funds measured for the one year ranking period and ranked 108 out of 449 funds measured for the five year ranking period as of September 30, 2020.
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 196 out of 882 funds measured for the one year ranking period and ranked 359 out of 704 funds measured for the five year ranking period as of September 30, 2020.
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 67 out of 361 funds measured for the one year ranking period and ranked 3 out of 267 funds measured for the five year ranking period as of September 30, 2020.
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.