May 2022 Market Insights
By: Tony Minopoli, President & CIO of Knights of Columbus Asset Advisors
Well, I owe you one. I am writing this essay on April 27th, as opposed to after month end, because at noon today I am leaving for vacation, so this is a truncated “Market Insights”! I will say well deserved, but colleagues on the trading desk might be a little less charitable! In any event, I wanted to get this done and off to compliance so it will be sent to all of you.
This month has remained particularly challenging in the markets and the world. The Ukrainian soldiers and people have shown tremendous resolve against the more well-armed and capable Russian adversary. Putin reassembled his forces in the eastern part of the country and appears to want to annex the Donbas region and solidify their occupation to the south by creating a greater territory connecting Russia to Crimea. In order to get Putin to stand down, I believe, his enormous ego will require a win. But what does a win look like? Is a win for Putin putting the world on notice that Russia remains formidable or is a win annexing the Donbas region? I am afraid that a win is needed, or the Russians will not pull out of Ukraine.
The interconnectedness of politics and the markets is one of the things that has always made investing so intriguing for me. There is no shortage of that in these current days as the seeds of inflation took root and have been exacerbated by the increases in energy prices that have been sustained over concerns of bans on Russian natural gas that are so important to the energy demand of Europe.
During this month, the S&P 500 is down approximately 8.1% and the Bloomberg Aggregate Bond Index has returned -2.6% over the same period 1. I do not have any great confidence that the last few trading days of the month are going to turn these indices positive. The markets continue to be focused on inflation as food and energy prices continue to rise. When there are small bouts of inflation in an isolated commodity or item that are viewed as temporary, suppliers will often absorb the price hit. When you have something that is larger and more substantial, such as the current inflationary environment, it becomes impossible for the price increases to be totally absorbed within production and price increases then work their way through the system in the form of higher prices that we see at the pump, on the shelves, and in the invoices for the services that we demand.
Labor markets remain tight, and this is putting upward pressure on wages, although that is beginning to abate at the margin. The Federal Reserve (“Fed”) is certainly banking on inflation to peak soon and begin to taper off. At the same time, they appear ready to use several increases of 50 basis points on the Fed Funds rate in order to stave off inflation. When Paul Volcker was the Chairman of the Federal Reserve during the inflationary bout of the early 1980’s, he raised short rates to over 20% and that finally cooled economic activity to the point that prices and inflation came down. I do not think that we will need to get to that level, however, at the same time, I believe, the Volker recipe can and will work. As I have written in the past, the major concern the Fed has been fighting since the Great Financial Crisis in the 2008- 2009-time frame was deflation. Deflation is an insidious problem because there is really nothing policy makers can do to spur economic activity to keep prices from going down. Japan fought this for three decades and it is arguable if they have actually found their way completely out of the deflationary woods.
So, what are we to do? I have had many conversations with investors in the past several months and have tried to reassure them on their long-term asset allocations. For the major pools of money that I am responsible for, I have not shifted our long-term allocation policies. For my own personal assets, I have made no shifts either. I will not rehash the market timing discussions that I have chronicled in this column in the past, but I will say that we are not recommending any major shifts at this time. Our asset allocation committee was very neutral to the long-term policy, and this just means that we saw nothing cheap that was forcing us to move from our current position to be overweight a certain segment of the economy.
I cannot leave this month without mentioning Twitter. I have often said that if I had infinite resources, one could keep the mansion and the yacht, I would want a plane to avoid the time waste at airports. I cannot imagine what it feels like to think, “man, Twitter is doing too much censoring so if I buy it, I can make free speech free again” and then actually buying the company. I am intrigued to see how this works out and it has been fun to watch the far left losing their minds!
As a close, Supreme Knight Patrick Kelly created our Ukrainian Solidarity Fund right after the war started in order to help our Brother Knights and all Ukrainians. Having members in Ukraine and Poland really allowed us to move quite quickly, but one never knows if people will meet the challenge. It has quickly grown to $13 million and continues to grow each day. Our fund will be longer tailed, meaning that we are helping with immediate needs today, but we are preserving some of the assets to be there to help during the rebuild when this ridiculous and unjust war is finally over. May God bless the Ukrainian people and bring an end to their suffering.
Until next month.
1 Source: Bloomberg as of 04/30/22
Core Bond Fund
| One Month ( As of 4/30/22) |
YTD ( As of 4/30/22) |
1 Year ( As of 3/31/22) |
5 Years ( As of 3/31/22) |
Since Inception ( As of 3/31/22) |
|
|---|---|---|---|---|---|
| Core Bond Fund-I Shares | -3.83% | -9.80% | -4.05% | 2.40% | 2.19% |
| Bloomberg US Aggregate Bond Index | -3.79% | -9.50% | -4.15% | 2.14% | 1.191% |
| Lipper Core Bond Fund Average | -3.71% | -9.42% | -4.30% | 2.21% | 1.95% |
| Lipper Percentile Rank | 34% | 35% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 513 (1 Year) and 439 (5 Year).Gross Expense Ratio 0.71%, Net Expense Ratio 0.50%.
Limited Duration Fund
| One Month ( As of 4/30/22) |
YTD ( As of 4/30/22) |
1 Year ( As of 3/31/22) |
5 Years ( As of 3/31/22) |
Since Inception ( As of 3/31/22) |
|
|---|---|---|---|---|---|
| Limited Duration Bond Fund-I Shares | -0.52% | -2.90% | -2.72% | 1.36% | 1.20% |
| Bloomberg Government/Credit 1-3 Year Index | -0.54% | -3.01% | -2.91% | 1.26% | 1.17% |
| Lipper Short Investment Grade Debt Fund Average | -0.80% | -3.42% | -2.58% | 1.47% | 1.39% |
| Lipper Percentile Rank | 56% | 61% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 368 (1 Year) and 292 (5 Year). Gross Expense Ratio 0.71%, Net Expense Ratio 0.50%.
Large Cap Growth Fund
| One Month ( As of 4/30/22) |
YTD ( As of 4/30/22) |
1 Year ( As of 3/31/22) |
5 Years ( As of 3/31/22) |
Since Inception ( As of 3/31/22) |
|
|---|---|---|---|---|---|
| Large Cap Growth Fund-I Shares | -11.07% | -21.64% | 4.14% | 15.54% | 12.11% |
| Russell 1000 Growth Index | -12.08% | -20.03% | 14.98% | 20.88% | 16.91% |
| Lipper Multi-Cap Growth Fund Average | 12.66% | -23.60% | -0.08% | 17.01% | 13.32% |
| Lipper Percentile Rank | 39% | 60% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 368 (1 Year) and 292 (5 Year). Gross Expense Ratio 0.71%, Net Expense Ratio 0.50%
Large Cap Value Fund
| One Month ( As of 4/30/22) |
YTD ( As of 4/30/22) |
1 Year ( As of 3/31/22) |
5 Years ( As of 3/31/22) |
Since Inception ( As of 3/31/22) |
|
|---|---|---|---|---|---|
| Large Cap Value Fund-I Shares | -5.95% | -6.73% | 12.21% | 10.95% | 9.53% |
| Russell 1000 Value Index | -5.64% | -6.34% | 11.67% | 10.29% | 9.38% |
| Lipper Multi-Cap Value Fund Average | -5.62% | -6.00% | 11.74% | 10.42% | 9.04% |
| Lipper Percentile Rank | 51% | 38% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 618 (1 Year) and 528 (5 Year). Gross Expense Ratio 0.90%, Net Expense Ratio 0.90%.
Small Cap Fund
| One Month ( As of 3/31/22) |
YTD ( As of 3/31/22) |
1 Year ( As of 3/31/22) |
5 Years ( As of 3/31/22) |
Since Inception ( As of 3/31/22) |
|
|---|---|---|---|---|---|
| Small Cap Equity Fund-I Shares | -9.46% | -16.24% | 2.03% | 9.47% | 7.95% |
| Russell 2000 Index | -9.91% | -16.69% | -5.79% | 9.74% | 9.02% |
| Lipper Small Cap Fund Average | -7.60% | -12.39% | 2.16% | 9.07% | 8.57% |
| Lipper Percentile Rank | 50% | 45% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 843 (1 Year) and 729 (5 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 1.05%.
International Equity Fund
| One Month ( As of 4/30/22) |
YTD ( As of 4/30/22) |
1 Year ( As of 3/31/22) |
5 Years ( As of 3/31/22) |
Since Inception ( As of 3/31/22) |
|
|---|---|---|---|---|---|
| International Equity-I Shares | -8.54% | -13.75% | -0.52% | 8.46% | 6.56% |
| FTSE All World Ex US Index | -6.11% | -10.87% | -0.59% | 7.42% | 5.60% |
| Lipper International Multi-Cap Fund Average | -6.10% | -12.24% | -1.31% | 5.92% | 4.47% |
| Lipper Percentile Rank | 47% | 2% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 345 (1 Year) and 273 (5 Year). Gross Expense Ratio 1.21%, Net Expense Ratio 1.10%.
Real Estate Fund
| One Month ( As of 4/30/22) |
YTD ( As of 4/30/22) |
1 Year ( As of 3/31/22) |
Since Inception ( As of 3/31/22) |
|
|---|---|---|---|---|
| Real Estate-I Shares | -3.47% | -5.41% | 24.77% | 13.56% |
| FTSE Nareit Equity REITs Index | -4.39% | -8.08% | 26.49% | 9.59% |
| Lipper Real Estate Average | -3.94% | -9.09% | 21.52% | 9.84% |
| Lipper Percentile Rank | 43% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Real Estate Number of Funds in Category: 253 (1 Year) Gross Expense Ratio 1.16%, Net Expense Ratio 1.00%.
Long-Short Equity Fund
| One Month ( As of 4/30/22) |
YTD ( As of 4/30/22) |
1 Year ( As of 3/31/22) |
Since Inception ( As of 3/31/22) |
|
|---|---|---|---|---|
| Long-Short Equity – I Shares | 3.03% | 7.98% | 14.38% | 3.79% |
| HFRX Equity Market Neutral Developed Index | 0.58% | 0.68% | -1.42% | -1.54% |
| Lipper Alternative Long/Short Average | -3.23% | -4.91% | 6.06% | 8.34% |
| Lipper Percentile rank | 12% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Alternative Long/Short Equity Number of Funds in Category: 247 (1 Year) Gross Expense Ratio 2.63, Net Expense Ratio 2.28%.
U.S. All Cap Index Fund
| One Month ( As of 4/30/22) |
YTD ( As of 4/30/22) |
1 Year ( As of 3/31/22) |
Since Inception ( As of 3/31/22) |
|
|---|---|---|---|---|
| U.S. All Cap Index – I Shares | -9.14% | -14.76% | 11.43% | 17.90% |
| Knights of Columbus U.S. All Cap Index | -9.13% | -14.71% | 11.53% | 18.37% |
| Lipper Multi-Cap Core Average | -7.96% | -13.34% | 9.15% | 14.91% |
| Lipper Percentile rank | 43% |
*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Core Number of Funds in Category: 647 (1 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 206 out of 368 funds measured for the one-year ranking period and ranked 177 out of 292 funds measured for the five-year ranking period as of March 31, 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 172 out of 513 funds measured for the one-year ranking period and ranked 153 out of 439 funds measured for the five-year ranking period as of March 31, 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 189 out of 490 funds measured for the one-year ranking period ranked and 248 out of 410 funds measured for the five year ranking period as of March 31, 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 318 out of 618 funds measured for the one-year ranking period and ranked 203 out of 528 funds measured for the five-year ranking period as of March 31, 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 424 out of 843 funds measured for the one-year ranking period and ranked 328 out of 729 funds measured for the five-year ranking period as of March 31, 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 161 out of 345 funds measured for the one-year ranking period and ranked 6 out of 273 funds measured for the five-year ranking period as of March 31, 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 110 out of 253 funds measured for the one-year ranking period as of March 31, 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 29 out of 221 funds measured for the one-year ranking period as of March 31, 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 277 out of 647 funds measured for the one-year ranking period as of March 31, 2022.
Past performance does not guarantee future results.
This commentary has been prepared by Knights of Columbus Asset Advisors for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities. The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding any holdings is not a recommendation to buy or sell any security. Fund holdings are fluid and are subject to daily change based on market conditions and other factors. Index returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index
Important Mutual Fund Disclosures
Consider the funds’ investment objectives, risks, charges and expenses carefully before investing. This and other information can be found in the funds’ full or summary prospectuses, which can be obtained by calling 1-844-KC-Funds or by visiting www.kofcassetadvisors.org. Please read the prospectus carefully before investing.
Mutual fund (Knights of Columbus mutual funds were formerly known as Catholic Investor mutual funds) investing involves risk. Some mutual funds have more risk than others. The investment return and principal value will fluctuate and shares when sold may be worth more or less than the original cost. Fixed income investments are subject to interest rate risk, and their value will decline as interest rates rise. Asset allocation and diversification do not assure a profit or protect against loss in declining markets. There is no guarantee a Fund's objectives will be achieved. The risks associated with each fund are explained more fully in each fund's respective prospectus. Investors should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation.
Mutual Funds are not insured by the FDIC or any other federal government agency, may lose value, and are not a deposit of or guaranteed by any bank or any bank affiliate.
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