Market Insights


April 2021

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

As we have been evaluating the future path of the economy, I have been focusing in on three key areas: The Federal Reserve (“Fed”), the growth of M2 money supply and the state of the employment market. All three of these items will have a significant impact on the path of the economy as we progress with vaccinations (okay a fourth key piece to the puzzle!). Individually, however, the synergistic impact on the economy from these items is what we are trying to comprehend.

The Fed has vowed to keep rates low and to allow the economy to run “hot” to avoid deflation. On several occasions, I have written about Paul Volcker’s rapid rate hiking actions to curb the inflation of the late 1970’s. The strategy of hiking short rates to a high level is a very effective way off cooling an overheating economy. The Fed continues to worry about deflation, or even the whiff of deflation, and has vowed to let inflation run more than 2.0%, even for a protracted period to avoid deflation. One interesting datapoint was found within the NFIB Index report1 that indicated that the share of respondents planning to raise prices jumped to the highest level since the summer of 2008. Further, the share of respondents having difficulty in filling current job openings jumped to the highest levels since the mid 1970’s. Both items are both pro cyclical and inflationary.

The other side of the Government’s impact on the economy is in the area of fiscal policy. Many are debating the need for the last $1.9 trillion given that the economy was growing without the latest round of stimulus. On the one hand, this newest round of stimulus will be putting even more money in the hands of Americans as we continue to see more and more of the economy open. The Biden administration is now focusing on a massive infrastructure bill that, in my view, is a way of attempting to drive through many elements of the Green New Deal2. It seems to me that the new administration is trying to be more impactful than the Great Society of Lyndon Johnson and, perhaps, even more grand than the New Deal of Franklin Delano Roosevelt (“FDR”).

The current challenge is that the total debt we have in place now is at the highest level since World War II and the largest deficit in peace time in the history of the country1. Many pundits are reflecting on the size of the recent stimulus as well as the fiscal plans of the administration and truly see them as massive in both scale and ambition. There are many “goodies” packed into the plan and this, in my opinion, is a Green New Deal and Progressive Wish List. The proposal is unlikely to pass the Senate unless the Democrats determine it is an amendment to the Reconciliation Budget in order to pass it with their caucus plus the Vice President without any Republican votes. I will leave it to the historians and social scientists, but, in my view, these actions are certainly stretching the intentions of the Constitution.

This brings me to the growth of the Money Supply. We are looking at M2 as the representative statistic of money supply growth for the purposes of this essay. M2 is a measurement of the money supply that includes cash, checking deposits, money market mutual funds, and large time deposits. On March 19, 2020, M2 stood at $16.014 trillion4. The most recent release was February 1, 2021, and M2 stood at $19.669 trillion for a difference of $3.655 trillion. By any measure, that’s a lot of money!

The conundrum I am trying to decipher around money supply growth and M2 is the difference of opinions about the growth in savings. Is the growth in M2 viewed by individuals as wealth or savings? If this increase in M2 is considered wealth, the impact on the economy could be slow. We believe this is because individuals will view wealth as part of their nest egg and not to be utilized for current consumption. If, on the other hand, the growth in M2 is viewed as savings and represents unspent money for current consumption, we could have an entirely different situation. Under this scenario, this money will find its way into the economy to be spent on goods and services. To the extent that the economy cannot supply all the goods demanded, one could reasonably expect some level of inflation to occur as there could be too much money chasing too few goods. If the excess savings is consumed more quickly, this could lead to greater economic growth as well, and help underscore the inflation the Fed is looking for to stave off a deflationary environment.

The reality is likely to be something in the middle, whereby some proportion of the population looks at the growth in their savings as wealth to be consumed later, and others will view this increase in their savings as unrealized consumption and they will seek to spend this money as the economy continues to open. As I pen this essay on April 1, 2021, I just received my first Covid shot (Pfizer and so far, no reaction about 1 hour in!) and there is some concern about a fourth wave. As vaccinations increase and we reach herd immunity, we are following the consensus that this fourth wave should be short lived. I am hopeful that we will reexamine the economic shut down with all the economic, social and health impacts, to understand whether we should ever enact such a strategy again.

I want to share a brief thought that I am starting to research. My friend Leo is in the electrical components business with a focus on refurbishing very large electrical breakers for commercial and industrial applications. We are all familiar with the small breakers in our service panels, but these breakers are literally the size of a dishwasher. In any event, Leo was speaking with an electrical engineer for a public utility and relayed to me that the engineer said a typical American street with 24 houses could likely only power 4 to 6 electric vehicles because the electrical wiring infrastructure cannot handle the amount of power needed to charge 2 cars per home. Think about it, if we were to all want, or have forced upon us, electric cars, we literally need to rebuild the ENTIRE electrical infrastructure in this country. I cannot even guess how much that would cost! I’m sure our elected officials haven’t thought that one through either. Don’t even get me started on the cost of changing every hot air furnace or hot water boiler used to heat individual homes. This is going to be a major transformation and, in my opinion, the government would be foolhardy to try and do that in one bill rammed through Congress. We shall see if blind ambition trumps reason!

Until next month’s market insights report.

https://assets.nfib.com/nfibcom/SBET-Feb-2021-final.pdf

“Green New Deal” proposals in front of Congress call for public policy to address climate change along with achieving other social aims like job creation and reducing economic inequality.

https://www.wsj.com/graphics/us-national-debt-visualized/

https://fred.stlouisfed.org/series/M2SL



Core Bond Fund

One Month
(as of 03/31/21)
YTD
(as of 03/31/21)
1 Year
(as of 12/31/20)
5 Years
(as of 12/31/20)
Since Inception
(as of 12/31/20)
Core Bond Fund-I Shares -0.96% -2.82% 4.87% 3.57% 3.26%
Bloomberg Barclays US Aggregate Bond Index -1.25% -3.37% 0.71% 3.10% 2.95%
Lipper Core Bond Fund Average -1.06% -2.94% 4.70% 3.43% 3.01%
Lipper Percentile Rank 42% 41%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 505 (1 Year) and 414 (5 Year). Gross Expense Ratio 0.84%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 03/31/21)
YTD
(as of 03/31/21)
1 Year
(as of 12/31/20)
5 Years
(as of 12/31/20)
Since Inception
(as of 12/31/20)
Limited Duration Fund-I Shares -0.10% 0.00% 5.14% 2.13% 1.86%
Bloomberg Barclays Government/Credit 1-3 Year Index -0.05% -0.04% 1.57% 2.00% 1.85%
Lipper Short Investment Grade Debt Fund Average -0.09% 0.02% 6.48% 2.43% 2.05%
Lipper Percentile Rank 67% 68%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 369 (1 Year) and 293 (5 Year). Gross Expense Ratio 0.82%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 03/31/21)
YTD
(as of 03/31/21)
1 Year
(as of 12/31/20)
5 Years
(as of 12/31/20)
Since Inception
(as of 12/31/20)
Large Cap Growth Fund-I Shares 0.12% 1.02% 59.03% 17.30% 13.48%
Russell 1000 Growth Index 1.72% 0.94% 62.74% 21.05% 17.23%
Lipper Multi-Cap Growth Fund Average -0.74% 1.45% 71.60% 20.08% 15.51%
Lipper Percentile Rank 75% 71%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 507 (1 Year) and 406 (5 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 03/01/21)
YTD
(as of 03/01/21)
1 Year
(as of 12/31/20)
5 Years
(as of 12/31/20)
Since Inception
(as of 12/31/20)
Large Cap Value Fund-I Shares 7.55% 13.84% 58.29% 12.20% 9.10%
Russell 1000 Value Index 5.88% 11.26% 56.09% 11.74% 9.01%
Lipper Multi-Cap Value Fund Average 6.17% 12.50% 63.68% 11.47% 8.52%
Lipper Percentile Rank 58% 33%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 581 (1 Year) and 462 (5 Year). Gross Expense Ratio 1.06%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 03/31/21)
YTD
(as of 03/31/21)
1 Year
(as of 12/31/20)
5 Years
(as of 12/31/20)
Since Inception
(as of 12/31/20)
Small Cap Equity Fund-I Shares 1.66% 12.25% 89.40% 12.62% 8.96%
Russell 2000 Index 1.00% 12.70% 94.85% 16.35% 11.66%
Lipper Small Cap Fund Average 3.76% 15.90% 89.09% 12.95% 9.62%
Lipper Percentile Rank 49% 52%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 899 (1 Year) and 726 (5 Year). Gross Expense Ratio 1.14%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 03/31/21)
YTD
(as of 03/31/21)
1 Year
(as of 12/31/20)
5 Years
(as of 12/31/20)
Since Inception
(as of 12/31/20)
International Equity-I Shares 1.96% 5.52% 59.26% 11.81% 7.77%
FTSE All World Ex US Index 1.48% 3.77% 50.97% 10.37% 6.65%
Lipper International Multi-Cap Fund Average 2.60% 4.09% 47.76% 8.51% 5.36%
Lipper Percentile Rank 11% 1%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 370 (1 Year) and 280 (5 Year). Gross Expense Ratio 1.39%, Net Expense Ratio 1.10%.

Real Estate Fund

One Month
(as of 03/31/21)
YTD
(as of 03/31/21)
QTD
(as of 12/31/20)
1 Year
(as of 12/31/20)
Since Inception
(as of 12/31/20)
Real Estate-I Shares 5.24% 5.88% 5.88% 41.23% 6.66%
FTSE Nareit Equity REITs Index 4.57% 8.87% 8.87% 37.78% -0.40%
Lipper Real Estate Average 4.34% 7.74% 7.74% 37.05% 2.92%
Lipper Percentile Rank 18%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Real Estate Number of Funds in Category: 246 (1 Year) Gross Expense Ratio 1.43%, Net Expense Ratio 1.00%.

Long-Short Equity Fund

One Month
(as of 03/28/21)
YTD
(as of 03/28/21)
QTD
(as of 12/31/20)
1 Year
(as of 12/31/20)
Since Inception
(as of 12/31/20)
Long-Short Equity – I Shares 4.39% 6.97% 6.97% 5.31% -3.54%
HFRX Equity Market Neutral Developed Index 1.29% 2.52% 2.52% 6.83 -1.64%
Lipper Long-Short Average -1.01% -2.19% -2.19% 8.54% 4.30%
Lipper Percentile rank 86%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Alternative Long/Short Equity Number of Funds in Category: 241 (1 Year) Gross Expense Ratio 2.03%, Net Expense Ratio 1.70%.

U.S. All Cap Index Fund

One Month
(as of 03/28/21)
YTD
(as of 03/28/21)
QTD
(as of 12/31/20)
1 Year
(as of 12/31/20)
Since Inception
(as of 12/31/20)
U.S. All Cap Index – I Shares 3.33% 6.96% 6.96% 65.32% 23.34%
Knights of Columbus U.S. All Cap Index 3.38% 7.13% 7.13% 67.02% 24.16%
Lipper Large Blend Average 3.83% 6.87% 6.87% 59.90% 19.34%
Lipper Percentile rank 22%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Core Number of Funds in Category: 660 (1 Year) 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, 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 is February 27, 2015. 1 year and 5 year fund performance is not available for the Real Estate Fund, Long/Short Equity, or the U.S. All Cap Index since the inception dates of the funds are September 30, 2019, December 21, 2019, and December 31, 2019, respectively. Lipper percentile rank is omitted for the Real Estate Fund, Long/Short Equity, and U.S. All Cap Fund given performance is not yet available.

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, 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 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 164 out of 371 funds measured for the one year ranking period and ranked 187 out of 296 funds measured for the five year ranking period as of September 30, 2020.

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 381 out of 505 funds measured for the one year ranking period and ranked 152 out of 411 funds measured for the five year ranking period as of September 30, 2020.

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 200 out of 502 funds measured for the one year ranking period ranked and 207 out of 395 funds measured for the five year ranking period as of September 30, 2020.

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 260 out of 574 funds measured for the one year ranking period and ranked 108 out of 449 funds measured for the five year ranking period as of September 30, 2020.

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 196 out of 882 funds measured for the one year ranking period and ranked 359 out of 704 funds measured for the five year ranking period as of September 30, 2020.

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 67 out of 361 funds measured for the one year ranking period and ranked 3 out of 267 funds measured for the five year ranking period as of September 30, 2020.

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.