September 2022 Market Insights
By: Tony Minopoli, President & CIO of Knights of Columbus Asset Advisors
As Labor Day is now behind us (Yes, I am a few days late getting this written!) the markets are focused on both domestic and global issues. Domestically, the concerns over inflation remain and the consideration that inflation might be transitory, was itself quite transitory. As I write this on September 6th, the 10-year Treasury is yielding 3.26% and the 2’s-10’s spread is negative 20 basis points. The inverted yield curve is providing market participants with the recession light blinking red. We continue to focus on whether this will be a deep or shallow recession. It does feel like the longer inflation remains stubbornly high, the greater the likelihood for a deeper recession.
Let’s first look at the employment market as unemployment ticked up 0.2% last week and underemployment ticked up 0.3%[1]. The change in non-farm payrolls showed that 315,000 new jobs were added, but revisions deleted about 100,000 jobs that were estimated to have been added in the prior few months. Even though we saw job growth increase, the Labor Participation Rate increased 0.3% so the people reentering the jobs market were not finding work. We remain with a serious skills mismatch in this country as employers that have job openings cannot find people trained in the areas where they have employment needs. As the father of an electrician, maybe we need apprenticeships in other aspects of the economy in the same way that my son spent four years being paid while he learned his craft. This certainly cannot be worse than making a bunch of money available for college which further exacerbates rising costs for college educations and the student debt balloon while our ingenious leaders feel that debt forgiveness is the way forward.
Inflation remains problematic as the Consumer Price Index (CPI) stands at 8.5%, although it is a tamer 5.9% when you factor out food and energy[2]. For those old enough to remember Andy Rooney from 60 Minutes, I can hear Andy saying, “I am not sure how I could factor out food and energy, but if I could I know I would feel better.” An interesting factor was that when CPI was released last month, it was the ex-food and energy number that increased by 0.3%. The headline number was flat month over month, mainly due to declining oil prices. As we continue to make it difficult to drill on federal lands, the decline in energy prices may itself be transitory.
This is where we cross from domestic issues to global issues. The war in Ukraine continues to drag on and the Ukrainians are waging a strong defense to maintain their sovereignty and the Russians are digging in because Putin cannot afford a defeat back home in Moscow. This has led to the Russians limiting the supply of gas to Europe where they are seeing electric bills multiply by factors and the winter heating season looks dismal for our European allies. I am not sure there are even enough liquified natural gas vessels that could offset a significant crimp of Russian supply. This is also feeding the global inflation narrative.
Back home, we are starting to see the real estate market slow as the stories of multiple bids over a single weekend are less commonplace than just a few months ago. As housing is a major driver of the U.S. economy, any slowdown will certainly spill over into the greater economy. The S&P CoreLogic Case-Shiller 20 City Composite peaked in April 2022 and declined during the last two months[3]. When you take the employment market, slowing wages, sustained high inflation, still relatively high energy prices and some cracks in the housing market, it really does feel like we are in for a bit of a pull back. As I stated earlier, the question is how big of a pullback will we see?
The equity market has retraced some of the gains we saw in July and August with the index closing down 17.7% for the year through the close on Friday. We put a near term low of 3,666.77 on the S&P on June 16th and the market went basically straight up with as near term high of 4,305.20 on August 16th. This two-month return was 17.4% and we have since witnessed the S&P decline by nearly 9%. The point of this quick return analysis is that the stock market will find a level before the economy turns around. On the one hand, market participants are betting that the Federal Reserve (Fed) will raise rates to a level to drive down inflation. The tricky part of the Fed machinations is that they need to find a level high enough to slow down the economy without inducing too severe of a recession. I was a young man when Paul Volker was doing his work in the early 1980’s, but it seems they were more concerned with choking off inflation and the economic pain was a necessary byproduct. Most of us are children of the Greenspan and Bernanke era when the “Fed Put” protected us from economic pain. We do believe that the longer the Fed tries to engineer a soft landing at the expense of inflation control, the longer they will be fighting this battle. I am not recommending that short rates rise to 20%, but I am an advocate of getting inflation under control because it can set the table for future economic growth with, hopefully, a return to moderate inflation.
A word on long-term inflation. As we look at a period of de-globalization, it might be impossible to get back to a prolonged period of 2.0 – 2.5% inflation. If more manufacturing is brought back to the U.S., we will see prices remain high. China and Southeast Asia exported many things to the U.S. over the years, but the biggest thing they exported was deflation and this came in the form of cheaper goods and far cheaper than we could ever produce here. If we want greater control of the supply chain and more domestic production this will come at the cost of higher prices.
Until next month.
[1] Source: Bloomberg, as of August 31, 2022
[2] Source: Bloomberg, as of July 31, 2022
[3] Source: Bloomberg. Peak reading of 21.28 with May 2022 and June 2022 reading of 20.51 and 18.65, respectively.
Core Bond Fund
| One Month ( As of 8/31/22) |
YTD ( As of 8/31/22) |
1 Year ( As of 6/30/22) |
5 Years ( As of 6/30/22) |
Since Inception ( As of 6/30/22) |
|
|---|---|---|---|---|---|
| Core Bond Fund-I Shares | -2.38% | -12.01% | -11.56% | 0.80% | 1.28% |
| Bloomberg US Aggregate Bond Index | -2.83% | -10.75% | -10.29% | 0.88% | 1.18% |
| Lipper Core Bond Fund Average | -2.55% | -11.06% | -11.09% | 0.79% | 1.10% |
| Lipper Percentile Rank | 66% | 50% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 504 (1 Year) and 438 (5 Year). Gross Expense Ratio 0.71%, Net Expense Ratio 0.50%.
Limited Duration Fund
| One Month ( As of 8/31/22) |
YTD ( As of 8/31/22) |
1 Year ( As of 6/30/22) |
5 Years ( As of 6/30/22) |
Since Inception ( As of 6/30/22) |
|
|---|---|---|---|---|---|
| Limited Duration Bond Fund-I Shares | -0.52% | -3.42% | -3.88% | 1.04% | 1.02% |
| Bloomberg Government/Credit 1-3 Year Index | -0.78% | -3.36% | -3.56% | 1.07% | 1.04% |
| Lipper Short Investment Grade Debt Fund Average | -0.55% | -4.02% | -4.67% | 1.04% | 1.11% |
| Lipper Percentile Rank | 24% | 52% |
*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 308 (5 Year). Gross Expense Ratio 0.71%, Net Expense Ratio 0.50%.
Large Cap Growth Fund
| One Month ( As of 8/31/22) |
YTD ( As of 8/31/22) |
1 Year ( As of 6/30/22) |
5 Years ( As of 6/30/22) |
Since Inception ( As of 6/30/22) |
|
|---|---|---|---|---|---|
| Large Cap Growth Fund-I Shares | -5.11% | -25.32% | -22.97% | 9.83% | 8.44% |
| Russell 1000 Growth Index | -4.66% | -23.19% | -18.77% | 14.29% | 12.63% |
| Lipper Multi-Cap Growth Fund Average | -3.44% | -27.75% | -29.68% | 9.88% | 8.92% |
| Lipper Percentile Rank | 36% | 50% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 465 (1 Year) and 393 (5 Year). Gross Expense Ratio 0.90%, Net Expense Ratio 0.90%.
Large Cap Value Fund
| One Month ( As of 8/31/22) |
YTD ( As of 8/31/22) |
1 Year ( As of 6/30/22) |
5 Years ( As of 6/30/22) |
Since Inception ( As of 6/30/22) |
|
|---|---|---|---|---|---|
| Large Cap Value Fund-I Shares | -3.11% | -10.70% | -7.37% | 7.42% | 7.15% |
| Russell 1000 Value Index | -2.98% | -9.85% | -6.82% | 7.17% | 7.13% |
| Lipper Multi-Cap Value Fund Average | -2.71% | -9.32% | -6.82% | 7.23% | 6.85% |
| Lipper Percentile Rank | 65% | 48% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 631 (1 Year) and 560 (5 Year). Gross Expense Ratio 0.90%, Net Expense Ratio 0.90%.
Small Cap Fund
| One Month ( As of 8/31/22) |
YTD ( As of 8/31/22) |
1 Year ( As of 6/30/22) |
5 Years ( As of 6/30/22) |
Since Inception ( As of 6/30/22) |
|
|---|---|---|---|---|---|
| Small Cap Equity Fund-I Shares | -3.20% | -19.27% | -20.27% | 4.19% | 4.79% |
| Russell 2000 Index | -2.05% | -17.16% | -25.20% | 5.17% | 5.94% |
| Lipper Small Cap Fund Average | -3.38% | -14.24% | -15.77% | 5.41% | 6.01% |
| Lipper Percentile Rank | 82% | 74% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 852 (1 Year) and 743 (5 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 1.05%.
International Equity Fund
| One Month ( As of7/31/22) |
YTD ( As of 8/31/22) |
1 Year ( As of 6/30/22) |
5 Years ( As of 6/30/22) |
Since Inception ( As of 6/30/22) |
|
|---|---|---|---|---|---|
| International Equity-I Shares | -6.22% | -21.92% | -21.65% | 3.42% | 3.86% |
| FTSE All World Ex US Index | -3.02% | -17.67% | -18.64% | 3.16% | 3.33% |
| Lipper International Multi-Cap Fund Average | -5.02% | -19.46% | -18.44% | 1.85% | 2.39% |
| Lipper Percentile Rank | 89% | 7% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 331 (1 Year) and 256 (5 Year). Gross Expense Ratio 1.21%, Net Expense Ratio 1.10%.
Real Estate Fund
| One Month ( As of 8/31/22) |
YTD ( As of 8/31/22) |
1 Year ( As of 6/30/22) |
Since Inception ( As of 6/30/22) |
|
|---|---|---|---|---|
| Real Estate-I Shares | -6.91% | -14.33% | -1.93% | 6.36% |
| FTSE Nareit Equity REITs Index | -5.97% | -18.17% | -6.27% | 1.56% |
| Lipper Real Estate Average | -5.71% | -18.50% | -8.17% | 2.29% |
| Lipper Percentile Rank | 1% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Real Estate
Number of Funds in Category: 247 (1 Year)
Gross Expense Ratio 1.16%, Net Expense Ratio 1.00%.
Long-Short Equity Fund
| One Month ( As of 8/31/22) |
YTD ( As of 8/31/22) |
1 Year ( As of 6/30/22) |
Since Inception ( As of 6/30/22) |
|
|---|---|---|---|---|
| Long-Short Equity – I Shares | -0.45% | 5.69% | 15.01% | 3.97% |
| HFRX Equity Market Neutral Developed Index | -0.22% | -2.16% | -3.83% | -2.36% |
| Lipper Alternative Long/Short Average | -2.00% | -7.15% | -4.36% | 4.84% |
| Lipper Percentile rank | 7% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Alternative Long/Short Equity Number of Funds in Category: 242 (1 Year) Gross Expense Ratio 2.63, Net Expense Ratio 2.28%.
U.S. All Cap Index Fund
| One Month ( As of 8/31/22) |
YTD ( As of 8/31/22) |
1 Year ( As of 6/30/22) |
Since Inception ( As of 6/30/22) |
|
|---|---|---|---|---|
| U.S. All Cap Index – I Shares | -3.64% | -18.08% | -15.47% | 7.36% |
| Knights of Columbus U.S. All Cap Index | -3.62% | -17.98% | -15.33% | 7.78% |
| Lipper Multi-Cap Core Average | -3.67% | -16.74% | -13.94% | 6.05% |
| Lipper Percentile rank | 70% |
*Lipper Percentile Rank is based on total return performance. Lipper Category: Multi-Cap Core Number of Funds in Category: 669 (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.