October 2022 Market Insights
By: Tony Minopoli, President & CIO of Knights of Columbus Asset Advisors
Well, we now have three quarters of 2022 in the books and it was quite a month and a quarter. We ended the 2nd quarter with the 10-Year Treasury yielding 3.02% and three months later, this yield climbed to 3.83%[1]. This change in yield also needs to be taken into context of the 1.51% yield on the 10-year at the start of 2022. The equity market has been a challenging place this year. Year-to-date, through September 30th, the S&P 500 was down 23.9%, with 4.9% of that decline occurring in the third quarter, while the month of September saw the index decline more than 9%[2].
We are looking at the potential for stagflation, and we may already be there, because inflation continues to remain high with the headline Consumer Price Inflation (CPI) standing at 8.3%[3] and, when factoring out food and energy, inflation is growing at 6.3%[4]. Durable Goods Orders declined last month and, this morning, the ISM Manufacturing Index declined to 50.9[5]. While it is true that any reading above 50 connotes growth, we are growing at a very decelerating rate as this index stood at 56.1 just four months ago and has declined in each subsequent month. There are other statistics that also show slowing, but my point is that we are still seeing high inflation and economic activity appears to be slowing. What may be delaying the declining growth part of this equation is the continued strength of the consumer due to the tight labor market. At their last reading, unemployment stood at 3.7% and underemployment was 7.0%, still quite low, albeit slightly higher than just a few months ago[6].
Regular readers know that both my thinking about the economy, and the economy itself, is informed by behavioral finance in that psychological influences can and do influence economic activity. For example, the combination of higher interest rates (driven by inflation expectations) and a general concern about economic activity has dramatically slowed the housing market. We went from an environment where people were lining up at open houses and writing letters to sellers in order to position themselves to be the preferred bidder, to homes now sitting on the market and price decreases beginning to occur. I appreciate that a primary culprit of the housing slowdown is the increased cost to the buyer due to higher interest rates. At the same time, the market has had a wholesale change that I believe supersedes a simple interest rate explanation.
So, we now sit at the end of September and the S&P 500 has returned -23.9% and the bond market, as measured by the Bloomberg Aggregate Bond Index, returned -14.6%. Calculating a simple 60/40 blend of these returns results in a combined return of -20.2% for the first nine months of the year. I have had several discussions with clients around the benefits of diversification, or more specifically the fact that diversification has not really helped this year.
The capital markets are being heavily impacted on a number of fronts. First, we have interest rates rapidly climbing as the Federal Reserve (Fed) and other central banks are attempting to fight off inflation. This has taken the wind out of the sales for stocks. At the same time, we cannot forget that some of the inflation that we are experiencing is due to domestic oil drilling policies of the current administration. This coupled with the Russia/Ukraine war and Russia severely limiting gas flow to Europe has caused the price of energy to move materially higher this year. As recession fears have started and China continues to fiddle with Covid lockdowns, we have witnessed a decline in energy prices, so the Organization of the Petroleum Exporting Countries (OPEC) is deciding on a production cut to maintain loft prices. It’s a lot more cost effective for the Saudis to run a golf league with $100 per barrel oil than it is with $60 per barrel oil, but you get the idea.
With all this said, we remain focused on building diversified portfolios because the next moves for the market will likely be uncertain as well as uneven. The ability to take a step back and determine long term goals will be far more beneficial than attempting to decide if we have reached a market bottom. As I have written about on several occasions, the world seemed pretty dark in March of 2009 as we were in what seemed like an interminable recession, and then the markets healed. In April of 2020, it seemed like the world was changed forever due to Covid and then the markets and the economy recovered.
As a young man, while interning at Evaluation Associates, one of the asset management firms that had been hired to manage assets for some of our clients made a strong market call. The manager, properly, was concerned about the excesses they saw in the market and promptly moved most of their portfolios to cash in September of 1987, just in time to miss the October market crash. Interestingly enough, my firm terminated this manager in early 1988 because they became so spooked by the market, they did not see the rebound and were unable to rebuild their portfolios. I do not know what happened to this company, but it struck me that the leaders of my company were able to recognize that this manager had become so gripped by all that was wrong, that they simply could not find even a shred of optimism.
I relay this story only to highlight those times of market stress and/or investor stress, are often the worst times to make major decisions. I fight the same issues that most individual investors fight, the desire for safety and security in uneven times. My inclination is always to fight these concerns and focus on the fundamentals of my asset allocation structure and remain positioned to participate in a wide array of market environments. It is not easy, but it is likely the wisest stance. We remain here to help and please call if you would like to discuss the markets or your portfolio.
Until next month.
[1] Source: Bloomberg, as of September 30, 2022
[2] Source: Bloomberg
[3] Source: Bloomberg, as of August 31, 2022
[4] Source: Bloomberg, as of August 31, 2022
[5] Source: Bloomberg, as of September 30, 2022
[6] Source: Bloomberg, as of August 31, 2022
Core Bond Fund
| One Month ( As of 09/30/22) |
YTD ( As of 09/30/22) |
1 Year ( As of 09/30/22) |
5 Years ( As of 09/30/22) |
Since Inception ( As of 09/30/22) |
|
|---|---|---|---|---|---|
| Core Bond Fund-I Shares | -3.90% | -15.45% | -15.50% | -0.25% | 0.66% |
| Bloomberg US Aggregate Bond Index | -4.32% | -14.61% | -14.60% | -0.27% | 0.50% |
| Lipper Core Bond Fund Average | -4.42% | -15.00% | -15.16% | -0.31% | |
| Lipper Percentile Rank | 57% | 41% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 503 (1 Year) and 439 (5 Year). Gross Expense Ratio 0.71%, Net Expense Ratio 0.50%.
Limited Duration Fund
| One Month ( As of 09/30/22) |
YTD ( As of 09/30/22) |
1 Year ( As of 09/30/22) |
5 Years ( As of 09/30/22) |
Since Inception ( As of 09/30/22) |
|
|---|---|---|---|---|---|
| Limited Duration Bond Fund-I Shares | -1.19% | -4.56% | -5.12% | 0.69% | 0.82% |
| Bloomberg Government/Credit 1-3 Year Index | -1.22% | -4.54% | -5.07% | 0.70% | 0.81% |
| Lipper Short Investment Grade Debt Fund Average | -1.47% | -5.46% | -5.91% | 0.70% | |
| Lipper Percentile Rank | 25% | 51% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 369 (1 Year) and 309 (5 Year). Gross Expense Ratio 0.71%, Net Expense Ratio 0.50%.
Large Cap Growth Fund
| One Month ( As of 09/30/22) |
YTD ( As of 09/30/22) |
1 Year ( As of 09/30/22) |
5 Years ( As of 09/30/22) |
Since Inception ( As of 09/30/22) |
|
|---|---|---|---|---|---|
| Large Cap Growth Fund-I Shares | -10.21% | -32.94% | -27.16% | 7.52% | 7.33% |
| Russell 1000 Growth Index | -9.72% | -30.66% | -22.59% | 12.17% | 11.65% |
| Lipper Multi-Cap Growth Fund Average | -9.34% | -34.49% | -31.72% | 8.42% | |
| Lipper Percentile Rank | 44% | 81% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 675 (1 Year) and 594 (5 Year). Gross Expense Ratio 0.90%, Net Expense Ratio 0.90%.
Large Cap Value Fund
| One Month ( As of 09/30/22) |
YTD ( As of 09/30/22) |
1 Year ( As of 09/30/22) |
5 Years ( As of 09/30/22) |
Since Inception ( As of 09/30/22) |
|
|---|---|---|---|---|---|
| Large Cap Value Fund-I Shares | -7.71% | -17.58% | -11.72% | 5.71% | 6.25% |
| Russell 1000 Value Index | -8.77% | -17.75% | -11.36% | 5.29% | 6.08% |
| Lipper Multi-Cap Value Fund Average | -8.67% | -17.16% | -10.82% | 5.34% | |
| Lipper Percentile Rank | 65% | 44% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 650 (1 Year) and 579 (5 Year). Gross Expense Ratio 0.90%, Net Expense Ratio 0.90%.
Small Cap Fund
| One Month ( As of 09/30/22) |
YTD ( As of 09/30/22) |
1 Year ( As of 09/30/22) |
5 Years ( As of 09/30/22) |
Since Inception ( As of 09/30/22) |
|
|---|---|---|---|---|---|
| Small Cap Equity Fund-I Shares | -9.05% | -26.58% | -22.46% | 2.26% | 3.54% |
| Russell 2000 Index | -9.58% | -25.10% | -23.50% | 3.55% | 5.18% |
| Lipper Small Cap Fund Average | -9.41% | -22.28% | -17.54% | 3.47% | |
| Lipper Percentile Rank | 19% | 92% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 729 (1 Year) and 640 (5 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 1.05%.
International Equity Fund
| One Month ( As of7/31/22) |
YTD ( As of 09/30/22) |
1 Year ( As of 09/30/22) |
5 Years ( As of 09/30/22) |
Since Inception ( As of 09/30/22) |
|
|---|---|---|---|---|---|
| International Equity-I Shares | -9.41% | -29.27% | -27.13% | -0.17% | 2.17% |
| FTSE All World Ex US Index | -9.95% | -25.86% | -24.52% | -0.08% | 1.85% |
| Lipper International Multi-Cap Fund Average | -9.39% | -27.01% | -25.33% | -1.31% | |
| Lipper Percentile Rank | 75% | 11% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 326 (1 Year) and 245 (5 Year). Gross Expense Ratio 1.21%, Net Expense Ratio 1.10%.
Real Estate Fund
| One Month ( As of 09/30/22) |
YTD ( As of 09/30/22) |
1 Year ( As of 09/30/22) |
Since Inception ( As of 09/30/22) |
|
|---|---|---|---|---|
| Real Estate-I Shares | -13.44% | -25.85% | -15.05% | 1.32% |
| FTSE Nareit Equity REITs Index | -12.18% | -28.13% | -16.41% | -2.04% |
| Lipper Real Estate Average | -12.15% | -28.37% | -18.27% | |
| Lipper Percentile Rank | 8% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Real Estate
Number of Funds in Category: 251 (1 Year)
Gross Expense Ratio 1.16%, Net Expense Ratio 1.00%.
Long-Short Equity Fund
| One Month ( As of 09/30/22) |
YTD ( As of 09/30/22) |
1 Year ( As of 09/30/22) |
Since Inception ( As of 09/30/22) |
|
|---|---|---|---|---|
| Long-Short Equity – I Shares | -0.79% | 4.85% | 11.16% | 3.12% |
| HFRX Equity Market Neutral Developed Index | 0.96% | -1.22% | -1.56% | -1.73% |
| Lipper Alternative Long/Short Average | -4.23% | -10.90% | -6.37% | |
| Lipper Percentile rank | 8% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Alternative Long/Short Equity Number of Funds in Category: 240 (1 Year) Gross Expense Ratio 2.63, Net Expense Ratio 2.28%.
U.S. All Cap Index Fund
| One Month ( As of 09/30/22) |
YTD ( As of 09/30/22) |
1 Year ( As of 09/30/22) |
Since Inception ( As of 09/30/22) |
|
|---|---|---|---|---|
| U.S. All Cap Index – I Shares | -10.05% | -26.31% | -19.49% | 4.80% |
| Knights of Columbus U.S. All Cap Index | -10.04% | -26.22% | -19.49% | 4.80% |
| Lipper Multi-Cap Core Average | -8.67% | -23.87% | -17.50% | |
| Lipper Percentile rank | 71% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Multi-Cap Core Number of Funds in Category: 658 (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 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.