February 2023 Market Insights
By: Tony Minopoli, President & CIO of Knights of Columbus Asset Advisors
The capital markets provided a reprieve for wary investors after the stock market slump in 2022. For January, the S&P 500 returned 6.3%[1] and that allowed investors to feel at least some relief. Overall, the market seems to have adopted the position that the Fed will win on inflation, wage pressure will come down, the economy will have a soft landing and we will be off to the races in the second half of the year. As I write this on February 6th, the market is up about 1% for the month of February. I am reminded to remind all our readers that the markets and the economy are related. However, that relation does not mean they are perfectly correlated, and many times, the markets will begin to improve long before the economy does on the basis that the markets previously discounted the economic move and was declining in advance of a softer economic environment. I suppose there are always exceptions to every rule, but we do feel that the market is predicting life is going to be good. We do still adhere to the longstanding market admonition of “Don’t fight the Fed!”
Tomorrow Federal Reserve Chair Jerome Powell will be interviewed, and he will be clarifying his views. Overall, we believe that Powell will continue to provide caution to the markets that the Fed will continue to raise rates in order to cool inflation. As with most things, when the pendulum has swung too far in one direction, the correction is often an overreaction on the other side. Ultimately, we do believe that the Fed may hike rates a little higher than needed in order to deliver the desired outcome.
During January the Bloomberg Aggregate Bond Index was up 3.1%[2] and during this time frame, the 10-year Treasury yield declined from 3.87% to 3.51%[3], creating this rally that drove bond prices higher. Since the end of January, the 10-year yield has increased to 3.63%[4] and the index has returned -.05% through February 3rd. The same set of circumstances that drove the strong equity returns in January apply to the bond market.
When we look at economic statistics, we have watched inflation peak at 9.1% in June and it fall to 6.5%[5] by year end. While this is a strong move to the downside, it is a far cry from the 1.4% annual inflation we had at the end of 2020. The Fed will continue to remain vigilant in order to see 6.5% annual inflation become something significantly lower. The January unemployment report came out last week and marked unemployment at 3.4%[6] and underemployment at 6.6%[7]. These statistics illustrate that the employment market remains strong, even as we read of layoffs in high tech and the potential for layoffs from some of the larger companies in the U.S. with most citing deteriorating economic conditions and a desire to manage their costs as a reason for downsizing their employee bases. Even though employment has been rising, Average Hourly Earnings for all employees are growing at 4.4%[8] annually and this is down from 5.9%[9] from March 2022. Again, this shows improvement, but wages are still growing too fast to meaningfully reduce inflation.
When we look at year-over-year production statistics, Industrial Production grew at 1.7%[10] and Factory Orders increased by 1.8%[11] over the trailing year. These two statistics indicate that the economy is slowing and when we look at these through the lens of ISM Manufacturing and see that index at 47.4%[12], the picture of a slowing economy becomes even more clear. The ISM Index indicates an expanding manufacturing sector for any reading over 50 and any reading under 50 indicates contraction. This index has been below 50 for the last three months. Of all the market statistic that I follow, the index of leading Indicators is my true bellwether for economic activity. This index turned negative in July, has been negative each month during the last six and has been getting consistently more negative. Overall, this index reinforces our view of an economic slowdown driven by Fed activity to slow inflation. We are seeing the opposite scenario of the pleasant outcome seemingly being priced into this market. If inflation and wages do not recede, the Fed will be forced to continue increasing rates and may have to return to increases of 50 or 75 basis points in order to tame inflationary pressure. This type of outcome is not part of the current pricing of the market and if inflation vacillates higher, we expect more market volatility. I have often thought that the markets are playing chess and when one tries to simplify market outcomes by playing checkers, that is when investors can be hurt.
The market is still trying to assess the future path of Russia’s invasion into Ukraine and, sadly, we will have the one-year anniversary of Putin’s folly later this month. A Chinese “weather” balloon was shot down by the U.S. military and this is just one more ratchet increase of tensions between the U.S. and China. The divided Congress and Republican lead in the House will probably keep very little legislation from getting passed. The “wall of worry” remains high, and we are waiting for more data and Fed pronouncements to understand if we are in for a more reasonable level of inflation or if the Fed will remain active to keep inflation from heating up again.
Until next month.
[1] Source: Bloomberg
[2] Source: Bloomberg
[3] Source: Bloomberg
[4] Source: Bloomberg
[5] Source: Bloomberg
[6] Source: Bloomberg
[7] Source: Bloomberg
[8] Source: Bloomberg
[9] Source: Bloomberg
[10] Source: Bloomberg
[11] Source: Bloomberg
[12] Source: Bloomberg
Core Bond Fund
| One Month ( As of 1/31/23) |
YTD ( As of 1/31/23) |
1 Year ( As of 1/31/23) |
5 Years ( As of 1/31/23) |
Since Inception ( As of 1/31/23) |
|
|---|---|---|---|---|---|
| Core Bond Fund-I Shares | 2.66% | 2.66% | -10.12% | 0.63% | 1.14% |
| Bloomberg US Aggregate Bond Index | 3.08% | 3.08% | -8.36% | 0.86% | 1.10% |
| Lipper Core Bond Fund Average | 3.35% | 3.35% | -5.80% | 0.81% | |
| Lipper Percentile Rank | 77% | 55% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 512 (1 Year) and 451 (5 Year). Gross Expense Ratio 0.71%, Net Expense Ratio 0.50%.
Limited Duration Fund
| One Month ( As of 1/31/23) |
YTD ( As of 1/31/23) |
1 Year ( As of 1/31/23) |
5 Years ( As of 1/31/23) |
Since Inception ( As of 1/31/23) |
|
|---|---|---|---|---|---|
| Limited Duration Bond Fund-I Shares | 0.95% | 0.95% | -2.21% | 1.10% | 1.01% |
| Bloomberg Government/Credit 1-3 Year Index | 0.80% | 0.80% | -2.21% | 1.14% | 1.01% |
| Lipper Short Investment Grade Debt Fund Average | 1.35% | 1.35% | -2.30% | 1.24% | |
| Lipper Percentile Rank | 42% | 63% |
Lipper Percentile Rank is based on total return performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 366 (1 Year) and 304 (5 Year). Gross Expense Ratio 0.71%, Net Expense Ratio 0.50%
Large Cap Growth Fund
| One Month ( As of 1/31/23) |
YTD ( As of 1/31/23) |
1 Year ( As of 1/31/23) |
5 Years ( As of 1/31/23) |
Since Inception ( As of 1/31/23) |
|
|---|---|---|---|---|---|
| Large Cap Growth Fund-I Shares | 7.12% | 7.12% | -19.65% | 6.46% | 8.23% |
| Russell 1000 Growth Index | 8.33% | 8.33% | -16.02% | 11.22% | 12.96% |
| Lipper Multi-Cap Growth Fund Average | 9.21% | 9.21% | -17.26% | 7.95% | |
| Lipper Percentile Rank | 73% | 88% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 667 (1 Year) and 599 (5 Year). Gross Expense Ratio 0.90%, Net Expense Ratio 0.90%.
Large Cap Value Fund
| One Month ( As of 1/31/23) |
YTD ( As of 1/31/23) |
1 Year ( As of 1/31/23) |
5 Years ( As of 1/31/23) |
Since Inception ( As of 1/31/23) |
|
|---|---|---|---|---|---|
| Large Cap Value Fund-I Shares | 4.66% | 4.66% | -0.89% | 6.82% | 8.07% |
| Russell 1000 Value Index | 5.18% | 5.18% | -0.43% | 6.94% | 8.08% |
| Lipper Multi-Cap Value Fund Average | 6.09% | 6.09% | 0.48% | 7.01% | - |
| Lipper Percentile Rank | 73% | 55% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 662 (1 Year) and 581 (5 Year). Gross Expense Ratio 0.90%, Net Expense Ratio 0.90%.
Small Cap Fund
| One Month ( As of 1/31/23) |
YTD ( As of 1/31/23) |
1 Year ( As of 1/31/23) |
5 Years ( As of 1/31/23) |
Since Inception ( As of 1/31/23) |
|
|---|---|---|---|---|---|
| Small Cap Equity Fund-I Shares | 8.15% | 8.15% | -6.99% | 4.01% | 6.09% |
| Russell 2000 Index | 9.75% | 9.75% | -3.38% | 5.54% | 7.25% |
| Lipper Small Cap Fund Average | 9.21% | 9.21% | -0.35% | 6.09% | |
| Lipper Percentile Rank | 39% | 89% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 712 (1 Year) and 628 (5 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 1.05%.
International Equity Fund
| One Month ( As of 1/31/23) |
YTD ( As of 1/31/23) |
1 Year ( As of 1/31/23) |
5 Years ( As of 1/31/23) |
Since Inception ( As of 1/31/23) |
|
|---|---|---|---|---|---|
| International Equity-I Shares | 7.77% | 7.77% | -10.83% | 1.60% | 4.81% |
| FTSE All World Ex US Index | 7.89% | 7.89% | -5.09% | 2.04% | 4.50% |
| Lipper International Multi-Cap Fund Average | 8.22% | 8.22% | -4.99% | 1.51% | - |
| Lipper Percentile Rank | 97% | 47% |
* Lipper Percentile Rank is based on total return performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 334 (1 Year) and 252 (5 Year). Gross Expense Ratio 1.21%, Net Expense Ratio 1.10%.
Real Estate Fund
| One Month ( As of 1/31/23) |
YTD ( As of 1/31/23) |
1 Year ( As of 1/31/23) |
3 Years ( As of 1/31/23) |
Since Inception ( As of 1/31/23) |
|
|---|---|---|---|---|---|
| Real Estate-I Shares | 11.75% | 11.75% | -8.60% | 4.39% | 5.88% |
| FTSE Nareit Equity REITs Index | 10.67% | 10.67% | -10.14% | 2.91% | 2.75 |
| Lipper Real Estate Average | 10.09% | 10.09% | -11.94% | 2.22 | - |
| Lipper Percentile Rank | 10% | 22% |
* Lipper Percentile Rank is based on total return performance. Lipper Category: Real Estate Number of Funds in Category: 249 (1 Year) and 231 (3 Year) Gross Expense Ratio 1.16%, Net Expense Ratio 1.00%.
Long-Short Equity Fund
| One Month ( As of 1/31/23) |
YTD ( As of 1/31/23) |
1 Year ( As of 1/31/23) |
3 Years ( As of 1/31/23) |
Since Inception ( As of 1/31/23) |
|
|---|---|---|---|---|---|
| Long-Short Equity – I Shares | 0.84% | 0.84% | 7.32% | 6.69% | 4.75 |
| HFRX Equity Market Neutral Developed Index | -0.14% | -0.14% | -0.54% | -0.51% | -1.19% |
| Lipper Alternative Long/Short Average | 3.13% | 3.13% | -1.47% | 5.56 | - |
| Lipper Percentile rank | 13% | 31% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Alternative Long/Short Equity Number of Funds in Category: 228 (1 Year) and 203 (3 Year) Gross Expense Ratio 2.63, Net Expense Ratio 2.28%.
U.S. All Cap Index Fund
| One Month ( As of 1/31/23) |
YTD ( As of 1/31/23) |
1 Year ( As of 1/31/23) |
3 Years ( As of 1/31/23) |
Since Inception ( As of 1/31/23) |
|
|---|---|---|---|---|---|
| U.S. All Cap Index – I Shares | 7.90% | 7.90% | -9.43% | 9.52% | 9.28% |
| Knights of Columbus U.S. All Cap Index | 7.93% | 7.93% | -9.15% | 9.94% | 9.69% |
| Lipper Multi-Cap Core Average | 6.64% | 6.64% | -6.96% | 8.30 | - |
| Lipper Percentile rank | 77% | 33% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Multi-Cap Core Number of Funds in Category: 659 (1 Year) and 598 (3 Year) Gross Expense Ratio 0.92%, 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 February 27, 2015. 5-year fund performance is not available for the Real Estate Fund, Long/Short Equity, or the U.S. All Cap Index since the funds’ inception dates are September 30, 2019, December 21, 2019, and December 31, 2019, respectively.
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, 2023.
Benchmark Definitions
Bloomberg 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 US Aggregate Bond Index – benchmark for Core Bond Fund
The Bloomberg 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 89 out of 369 funds measured for the one-year ranking period and ranked 159 out of 308 funds measured for the five-year ranking period as of June 30, 2022.
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 331 out of 504 funds measured for the one-year ranking period and ranked 220 out of 438 funds measured for the five-year ranking period as of June 30, 2022.
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 166 out of 465 funds measured for the one-year ranking period ranked and 197 out of 393 funds measured for the five year ranking period as of June 30, 2022.
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 411 out of 631 funds measured for the one-year ranking period and ranked 270 out of 560 funds measured for the five-year ranking period as of June 30, 2022.
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 699 out of 852 funds measured for the one-year ranking period and ranked 551 out of 743 funds measured for the five-year ranking period as of June 30, 2022.
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 295 out of 331 funds measured for the one-year ranking period and ranked 17 out of 256 funds measured for the five-year ranking period as of June 30, 2022.
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 2 out of 247 funds measured for the one-year ranking period as of June 30, 2022.
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 16 out of 242 funds measured for the one-year ranking period as of June 30, 2022.
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 471 out of 669 funds measured for the one-year ranking period as of June 30, 2022.