Market Insights


April 2020

By: Tony Minopoli, President & CIO of Knights of Columbus Asset Advisors

I have always been a student of history and politics and use this underpinning to look at “what is different this time” versus past crises. With the obvious proximity to the Great Financial Crisis (GFC) many are trying to draw parallels to that event. While there is no understating this environment, we believe this is a different set of circumstances and, if I may, I would compare it more to 1987 than 2009. The main difference between now and the GFC can be centered on the banks. In 2009, we had banks in a much more levered position, companies were more highly levered, and individuals were using home equity lines of credit like ATM cards. In this instance, the banks are very well capitalized and even with the demand for corporate lines of credit, the stressed scenarios seem to show the banks as being a strength as opposed to a weakness.

The need for congressional action, in my view, was very much needed because small businesses and their employees are likely the most vulnerable. Confidence in the economy, given the US GDP’s 70% economic dependence on the consumer, by small businesses and consumers is essential.

It is hard to find humor in any of the current events; however, I have had some chuckles at the description of the shape of the recovery, U-shaped, V-shaped, and my new personal favorite…check mark. Here’s what I do know and that is nobody knows the exact path we will emerge from this downturn. On the positive side, the economy, employment, wages, consumer sentiment and demand were all strong. This coupled with relatively strong banks and the generally good financial shape of the consumer sector bolster a view for a rebound. On the negative side, we don’t foresee that businesses will go “un-bankrupt”. The efficacy of the government’s response and the ladling of even more debt on our current bloated indebtedness raises our concern. Another possible factor impacting the situation involves the President weighing the balance of re-opening the economy to minimize damage versus minimizing the health risks posed by COVID-19. In my opinion, this is the critical question and threading this needle will be the largest significant factor on economic growth and the shape of the recovery.

We believe that the recession is upon us and the depth will be 10ish percent unemployment and we could easily see double digit negative GDP for the second quarter. We do believe that the economy will benefit from the strong underpinnings we had coming into this period and have some reason to be positive coming out of the other side. The major caveat to all of this is if we see a dramatic increase in COVID-19 cases with even greater persistency and if the economy remains frozen into June, we risk a longer-term recession and recovery time.

The caution seen in the markets was manifested in a significant decline (March 9 – 23), followed by three extremely strong upward days (March 24-26) which was driven mainly by the impact of the Federal Government’s $2 trillion stimulus package. Was the recent the bottom likely the real “bottom”? Unfortunately, I do not think so because we may have a dearth of good news for some time. I am not going to claim “fake news” as the President often does, but I am going to say that in my opinion most of the mainstream media is pretty slanted, so it is hard for me to get the straight story. My two “go to” people are Dr. Birx and Dr. Fauci, who I believe are straight talkers, experienced and not prone to hyperbole. We can use a little more of that.

From here, we think the economic path will be serially correlated to the path of the virus. If we can achieve “flattening of the curve” we will have an ability to start getting back to work. If the curve steepens, we could be in this lock down scenario for longer. My base thesis is the longer the lock down the longer the time to repair the economy. The President has now announced that we will continue the social distancing guidelines until the end of April and then reassess. The media has been breathless that the President was being risky. I watched the announcement about Easter when it was being broadcast live and the President never said that things would be back to normal by Easter; I believe he was much more aspirational.

As the third stimulus package was announced and put into law, some pundits are already turning to the fourth package. I would hope our elected leaders can focus on things that are needed and not be tone deaf and focus on special projects near and dear to their partisan leanings. On a more practical matter, I am concerned that this next package might be really mired in political wrangling because we are closing in on the Presidential election. In the most recent Gallup Poll, President Trump had an approval rating of 49%, the highest of his presidency and this poll was conducted by Gallup from March 13 to March 20. My general fear is that the Democrats may be extremely wary of anything that could be supportive of the President’s standing on handling the crisis. As the virus has basically derailed Joe Biden’s campaign it sometimes appears that the Democrats would like to draft Andrew Cuomo as he is seemingly more palatable than Uncle Joe at the moment. Similar to the period following the tragedy of September 11th, I am ever hopeful that our collective elected officials will do right by the country and our people.

We remain constructive on the economy on a long-term basis, but all of this is up to continued analysis as we work through the impact of the virus. Bond spreads have gapped out tremendously and we believe that this does represent a financial opportunity. We believe that equity valuation is a pretty tricky business at the moment, but unless you believe the economy is never coming back, valuations are much more attractive now than at year end. Personally, I have not become a market timer and have maintained my longterm allocations. Please reach out if you would like to discuss your portfolio in more detail.

I wish you all health and safety as we move through this crisis. We need to help one another and focus on the fact that together we will survive this challenge and move forward.

Until next month.

 

Core Bond Fund

One Month
(as of 3/31/20)
YTD
(as of 3/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Core Bond Fund-I Shares -4.21% -0.66% 5.60% 3.81% 2.94%
Bloomberg Barclays US Aggregate Bond Index -0.59% 3.15% 8.93% 4.82% 3.39%
Lipper Core Bond Fund Average -2.85% 0.43% 5.79% 3.61% 2.64%
Lipper Percentile Rank 60% 48%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 509 (1 Year) and 456 (3 Year). Gross Expense Ratio 0.84%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 3/31/20)
YTD
(as of 3/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Limited Duration Fund-I Shares -3.05% -1.88% 0.99% 1.51% 1.23%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.31% 1.69% 4.53% 2.58% 1.91%
Lipper Short Investment Grade Debt Fund Average -3.62% -2.59% 0.12% 1.27% 1.23%
Lipper Percentile Rank 40% 43%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 370 (1 Year) and 320 (3 Year). Gross Expense Ratio 0.82%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 3/31/20)
YTD
(as of 3/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Large Cap Growth Fund-I Shares -11.07% -14.99% -3.19% 7.52% 6.19%
Russell 1000 Growth Index -9.84% -14.10% 0.91% 11.32% 9.92%
Lipper Multi-Cap Growth Fund Average -12.10% -15.55% -5.20% 8.03% 6.58%
Lipper Percentile Rank 38% 49%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 540 (1 Year) and 479 (3 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 3/31/20)
YTD
(as of 3/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Large Cap Value Fund-I Shares -19.24% -28.28% -18.13% -1.81% 1.40%
Russell 1000 Value Index -17.09% -26.73% -17.17% -2.18% 1.59%
Lipper Multi-Cap Value Fund Average -18.88% -28.94% -20.76% -4.32% -0.27%
Lipper Percentile Rank 32% 20%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 483 (1 Year) and 419 (3 Year). Gross Expense Ratio 1.06%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 3/31/20)
YTD
(as of 3/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Small Cap Equity Fund-I Shares -23.27% -32.64% -27.07% -6.65% -2.27%
Russell 2000 Index -21.73% -30.61% -23.99% -4.64% 0.10%
Lipper Small Cap Fund Average -22.96% -32.84% -26.46% -7.25% -1.56%
Lipper Percentile Rank 55% 44%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 916 (1 Year) and 837 (3 Year). Gross Expense Ratio 1.14%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 3/31/20)
YTD
(as of 3/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
International Equity-I Shares -16.18% -24.61% -20.24% -1.79% -0.19%
FTSE All World Ex US Index -14.42% -23.35% -15.05% -1.60% -0.39%
Lipper International Multi-Cap Fund Average -15.05% -23.61% -16.22% -3.38% -1.75%
Lipper Percentile Rank 90% 19%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 411 (1 Year) and 361 (3 Year). Gross Expense Ratio 1.36%, Net Expense Ratio 1.10%.

Global Real Estate

One Month
(as of 3/31/20)
YTD
(as of 3/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Global Real Estate-I Shares -20.84% -25.71% - - -
FTSE EPRA/NAREIT Developed Index -22.62% -28.34% - - -
Lipper Real Estate Average -19.40% -23.99% - - -
Lipper Percentile Rank - -

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Real Estate Classification. Number of Funds in Category: 258 (1 Year) and 228 (3 Year). Gross Expense Ratio 1.43%, Net Expense Ratio 1.00%.

Long-Short Equity Fund

One Month
(as of 3/31/20)
YTD
(as of 3/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Long-Short Equity – I Shares -1.82% -9.66% - - -
HFRX Equity Market Neutral Developed Index -5.93% -7.80% - - -
Lipper Long-Short Average -5.48% -3.15% - - -
Lipper Percentile rank - -

*Lipper Percentile Rank is based on risk-adjusted performance.
Classification. Number of Funds in Category: 285 (1 Year) and 227 (3 Year)
Gross Expense Ratio 2.03%, Net Expense Ratio 1.70%.

U.S. All Cap Index Fund

One Month
(as of 3/31/20)
YTD
(as of 3/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
U.S. All Cap Index – I Shares -14.45% -21.38% - - -
Knights of Columbus U.S. All Cap Index -14.61% -21.54% - - -
Lipper Large Blend Average -14.87% -22.21% - - -
Lipper Percentile rank - -

*Lipper Percentile Rank is based on risk-adjusted performance.
Classification. Number of Funds in Category: 707 (1 Year) and 627 (3 Year).
Gross Expense Gross Expense Ratio 1.22%, Net Expense Ratio 0.25%.

The performance data quoted represents past performance. Past performance is not a guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth less than their original cost and current performance may be higher or lower than the performance quoted. Investment performance does not reflect the redemption fee; if it was reflected, the total return would be lower than shown. For performance data current to the most recent month end, please call 1-844-KC-FUNDS.

Fund performance for the 1 year, 3 year, and Since Inception periods are annualized. The inception date for each of the funds is February 27, 2015

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 29, 2021.

Benchmark Definitions



Bloomberg Barclays Government/Credit 1-3 Year Index – benchmark for Limited Duration Fund
The U.S. Government/Credit Index is the non-securitized component of the U.S. Aggregate Index and was the first macro index launched by Barclays Capital. The U.S. Government/Credit Index includes Treasuries (i.e., public obligations of the U.S. Treasury that have remaining maturities of more than one year), government-related issues (i.e., agency, sovereign, supranational, and local authority debt), and corporates. The U.S. Government/Credit Index was launched on January 1, 1979 and is a subset of the U.S. Aggregate Index. The 1-3 year index includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of between 1 and 3 years and are publicly issued.

Bloomberg Barclays US Aggregate Bond Index – benchmark for Core Bond Fund
The Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency). Provided the necessary inclusion rules are met, US Aggregate eligible securities also contribute to the multi-currency Global Aggregate Index and the US Universal Index, which includes high yield and emerging markets debt. The US Aggregate Index was created in 1986.

FTSE All-World Ex-U.S. Index – benchmark for International Equity Fund
The FTSE All-World ex US Index is one of a number of indexes designed to help investors benchmark their international investments. The index comprises Large and Mid cap stocks providing coverage of Developed and Emerging Markets excluding the US. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization.

Russell 1000 Growth Index – benchmark for Large Cap Growth Fund
The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Growth Index is constructed to provide a comprehensive and unbiased barometer for the large-cap growth segment. The Index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect growth characteristics.

Russell 1000 Value Index – benchmark for Large Cap Value Fund
The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The Russell 1000 Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. The Index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics.

Russell 2000 Index – benchmark for Small Cap Fund
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

FTSE EPRA/Nareit Developed Index – benchmark for Global Real Estate Fund – The FTSE EPRA/Nareit Developed Index is a free-float adjusted, market capitalization-weighted index designed to track the performance of listed real estate companies in developed countries worldwide. Constituents of the index are screened on liquidity, size, and revenue.

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 – benchmark 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 162 out of 364 funds measured for the one year ranking period and ranked 185 out of 315 funds measured for the three year ranking period as of September 30, 2019.

Lipper Core Bond Classification – benchmark 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 89 out of 512 funds measured for the one year ranking period and ranked 44 out of 451 funds measured for the three year ranking period as of September 30, 2019.

Lipper Multi-Cap Growth Classification – benchmark 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 433 out of 566 funds measured for the one year ranking period ranked and 347 out of 508 funds measured for the three year ranking period as of September 30, 2019.

Lipper Multi-Cap Value Classification – benchmark 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 130 out of 448 funds measured for the one year ranking period and ranked 19 out of 387 funds measured for the three year ranking period as of September 30, 2019.

Lipper Small-Cap Core Classification – benchmark 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 639 out of 953 funds measured for the one year ranking period and ranked 472 out of 844 funds measured for the three year ranking period as of September 30, 2019.

Lipper International Multi-Cap Core Classification – benchmark 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 246 out of 415 funds measured for the one year ranking period and ranked 16 out of 359 funds measured for the three year ranking period as of September 30, 2019.

Lipper Real Estate Classification – peer group for Global Real Estate
Funds that invest at least 25%, but less than 75%, of the equity portfolios in shares of companies engaged in the real estate industry that are strictly outside of the U.S. or whose securities are principally traded outside of the U.S.