Market Insights


August 2020

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

Well another month is behind us and we are in in the middle of a variety of competing topics.  First, we continue to see some progress on the vaccination front with some hope that there could be a vaccine by the end of 2020 or early 2021. This would be an amazingly fast result in the world of vaccinations; however, we have had major investments by governments, philanthropists and the drug companies. The drug regulators have been very focused on quickly reviewing results, but also keeping a strong eye on safety as much as efficacy.

I have completely given up on network and cable news outlets for information on COVID-19 as their political biases, from both sides, does not allow for accurate reporting. That is a sad issue, but not one for this column. Rather, I have been relying on economic research firms and read an interesting data analysis recently in a piece published on July 31, 2020, by Bank of America and their Credit Strategist Hans Mikkelsen. In this piece, entitled “Update on the State of the Pandemic”, they cite that “there are three observations we are not sure all investors realize. First experts - and we rely on the University of Washington's IHME center - estimate that the number of daily new COVID-19 infections in the U.S. currently are less than half of what we experienced at the peak on March 29th. Second, there is no second wave forecast, as the number of daily new infections by November 1st  is estimated to be 15% below current levels. Third, the recent first wave outbreaks in AZ, CA, FL and TX are showing clear signs of improvement as the number of people hospitalized due to COVID-19 is now declining. That means we are weeks past peak infection rates, although some no doubt will point out that deaths - a very lagged indicator - may continue to increase.”

As we review the COVID-19 information, we are convinced that masks and social distancing work and in our opinion, if we were all to engage in these two practices, coupled with continued focus on hand washing we could reduce the duration, severity and spread of the virus. Further, given the importance on the attitude and spending of the consumer on the path of the recovery, the better and factual the information the better the outcome from both the health and economic impact perspective.

We are now within three months of the Presidential election and things are beginning to heat up. I think we are all waiting on Joe Biden’s pick for Vice President because that woman (he has stipulated that he will pick a woman to be his Vice President) will likely be more of a co-President. It would not be surprising to me that if Biden won the election, he might not run for reelection in 2024 which makes this VP selection very important. This is not a digression into politics, but a forward look on where we are going with the economy. Our current administration lowered taxes such that our corporate tax rate is equivalent with Europe, reduced regulation and moved towards enticing companies to bring jobs back to the U.S.  Regular readers will know that before the Pandemic, we recognized the economy wasn’t perfect, but unemployment and underemployment stats were both low, hours worked and wages were rising and consumer and business sentiment were both high and climbing.. In our view, this is  why it is vitally important that we collectively do all we can do to slow and limit the spread of the virus and why it should be incumbent on news agencies to provide accurate news and facts (not your “truth” or someone else’s “truth”), but indisputable facts. As important as the Presidential election is, we believe we will gauge a view on the attitude of the country based on the results of the House and Senate races. We are in the consensus that the number of seats may change, but the leadership of both houses will likely remain with their current party after the election.

So, beyond politics and the virus, we also have the markets to talk about. For July, the S&P 500 returned 5.6%, with dividends reinvested. During the month, we saw further movement on interest rates with the 10-Year Treasury yield declining from 0.68% to 0.53%. In our opinion, the most recent leg down in rates has been driven by worries over what the next stimulus bill will look like. One of the major sticking points is the supplemental $600 per week unemployment payment that Democrats argue is helping people in need and Republicans argue is causing many to be paid more to stay at home than return to work so there is little incentive to return. This grid lock has caused the legislative delay and further concern and in our view a continued rush by some investors to the safe haven trade of U.S. Treasuries. Further, we believe the continued strong demand for safe assets, despite the stock market’s run from the COVID-19 low, reflects the many who are not convinced a rising market is sustainable and their desire to embrace the safety of a Treasury bond, no matter how paltry the yield might be a the present time. We are concerned about the tinder being created for a future bout of inflation because this next stimulus package could put us well over $5 trillion in newly minted/digitized money. This is not an immediate concern but one that bears watching.

My words of advice are as follows. Buckle up. We think this could be a bumpy ride so we believe investors should take opportunities to rebalance their assets to targets but only change their allocation if something has truly changed with respect to the assets they manage for themselves or on behalf of another organization. Do not market time! The S&P 500 hit its closing low on March 23rd, and it ended that day at 2,237.4. From that day to today, 11:40 AM on August 3rd, the S&P has generated a price gain 47.3%. No one would have faulted anyone for panicking in March, but I would argue had you done so, after a 47% move, this would hardly be an attractive entry point. So, we think we will see some volatility around the election, COVID-19 and the economy. We think you should reaffirm your asset allocation, but only shift if something fundamentally has changed for you. Volatility does not mean permanent loss and as I am waiting for Hurricane or Tropical Storm Isaias to visit Connecticut, I am reminded of preparedness and patience…as this too shall pass.

We are certainly in for some interesting times over the next three months as the election, the progress of the virus, an effective COVID-19 vaccine, and the path of the economy become more known.  Please reach out to us if you would like to discuss your investment structure or concerns you have given the current “set of cards” we have all been dealt. 

For those living in the path of the storm, I wish you and your families safety, for us all, I pray for health during this global pandemic and God bless us all in this trying time.

Until next month.



 

Core Bond Fund

One Month
(as of 7/31/20)
YTD
(as of 7/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Core Bond Fund-I Shares 2.00% 5.84% 6.74% 4.18% 3.65%
Bloomberg Barclays US Aggregate Bond Index 1.49% 7.72% 8.74% 4.30% 3.78%
Lipper Core Bond Fund Average 1.82% 7.31% 7.82% 3.98% 3.47%
Lipper Percentile Rank 80% 41%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 515 (1 Year) and 415 (5 Year). Gross Expense Ratio 0.84%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 7/31/20)
YTD
(as of 7/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Limited Duration Fund-I Shares 0.60% 2.26% 3.01% 1.94% 1.84%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.19% 3.07% 4.20% 2.11% 2.04%
Lipper Short Investment Grade Debt Fund Average 0.65% 1.41% 2.75% 2.04% 1.94%
Lipper Percentile Rank 50% 64%

*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 288 (5 Year). Gross Expense Ratio 0.82%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 7/31/20)
YTD
(as of 7/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Large Cap Growth Fund-I Shares 6.45% 15.60% 17.73% 11.72% 10.87%
Russell 1000 Growth Index 7.69% 18.26% 23.28% 15.89% 14.58%
Lipper Multi-Cap Growth Fund Average 7.19% 18.20% 17.46% 12.26% 11.66%
Lipper Percentile Rank 43% 52%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 545 (1 Year) and 424 (5 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 7/31/20)
YTD
(as of 7/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Large Cap Value Fund-I Shares 3.31% -14.32% -8.70% 4.93% 4.13%
Russell 1000 Value Index 3.95% -12.95% -8.84% 4.64% 4.09%
Lipper Multi-Cap Value Fund Average 3.55% -14.35% -10.51% 3.06% 2.67%
Lipper Percentile Rank 32% 18%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 526 (1 Year) and 403 (5 Year). Gross Expense Ratio 1.06%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 7/31/20)
YTD
(as of 7/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Small Cap Equity Fund-I Shares 3.33% -12.93% -12.54% 1.45% 2.03%
Russell 2000 Index 2.77% -10.57% -6.63% 4.29% 4.43%
Lipper Small Cap Fund Average 3.38% -15.26% -12.24% 2.01% 2.28%
Lipper Percentile Rank 52% 58%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 914 (1 Year) and 709 (5 Year). Gross Expense Ratio 1.14%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 7/31/20)
YTD
(as of 7/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
International Equity-I Shares 5.92% -6.20% -6.56% 3.34% 2.87%
FTSE All World Ex US Index 4.36% -6.76% -3.99% 2.81% 2.53%
Lipper International Multi-Cap Fund Average 3.00% -8.48% -5.45% 1.26% 1.19%
Lipper Percentile Rank 68% 7%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 398 (1 Year) and 289 (5 Year). Gross Expense Ratio 1.39%, Net Expense Ratio 1.10%.

Real Estate Fund

One Month
(as of 7/31/20)
YTD
(as of 7/31/20)
QTD
(as of 6/30/20)
1 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Real Estate-I Shares 1.70% -12.36% 16.00% - -9.52%
FTSE EPRA/NAREIT Developed Index 4.05% -15.42% 10.33% - -19.39%
Lipper Real Estate Average 2.85% -19.38% 12.52% - -14.30%
Lipper Percentile Rank -

Gross Expense Ratio 1.43%, Net Expense Ratio 1.00%.

Long-Short Equity Fund

One Month
(as of 7/31/20)
YTD
(as of 7/31/20)
QTD
(as of 6/30/20)
1 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Long-Short Equity – I Shares -1.66% -10.95% 0.22% - -9.27%
HFRX Equity Market Neutral Developed Index -1.77% -6.69% 3.02% - -5.66%
Lipper Long-Short Average 1.50% 5.80% 7.63% - -5.78%
Lipper Percentile rank -

Gross Expense Ratio 2.03%, Net Expense Ratio 1.70%.

U.S. All Cap Index Fund

One Month
(as of 7/31/20)
YTD
(as of 7/31/20)
QTD
(as of 6/30/20)
1 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
U.S. All Cap Index – I Shares 5.24% 1.42% 22.57% - -3.63%
Knights of Columbus U.S. All Cap Index 5.32% 1.92% 23.34% - -3.23%
Lipper Large Blend Average 5.41% -0.67% 21.10% - -5.78%
Lipper Percentile rank -

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, 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.

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.

S&P 500 Index
The S&P 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. This index is a barometer of the stock market as a whole and, arguably, reflects the economy given the diversity of underlying sectors.

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 185 out of 369 funds measured for the one year ranking period and ranked 183 out of 288 funds measured for the five year ranking period as of June 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 414 out of 515 funds measured for the one year ranking period and ranked 169 out of 415 funds measured for the five year ranking period as of June 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 236 out of 545 funds measured for the one year ranking period ranked and 219 out of 424 funds measured for the five year ranking period as of June 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 170 out of 526 funds measured for the one year ranking period and ranked 72 out of 403 funds measured for the five year ranking period as of June 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 477 out of 914 funds measured for the one year ranking period and ranked 412 out of 709 funds measured for the five year ranking period as of June 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 272 out of 398 funds measured for the one year ranking period and ranked 20 out of 289 funds measured for the five year ranking period as of June 30, 2020.