Market Insights


December 2018

By: Tony Minopoli, CIO of the Knights of Columbus

With the midterm elections behind us, in a great sense the markets got an early Christmas present in the form of a divided government that should virtually guarantee gridlock until the next Presidential election in 2020. We will need to see the character of the new Congress when they are seated. While freshman New York Congresswoman Alexandra Ocascio-Cortez is very much the face of the new Congress, early indications are that this new Congress is more moderate in aggregate than the far-left politicians that often garner significant headlines.

The makeup of the new Congress, in my view, will have significant implications both for how markets are viewed and the policies that they put forth in legislation. I am not overly optimistic on some new level of bipartisan cooperation because the vitriol from the hard sides of both parties makes it highly unlikely for too much cooperation to take place.

After peaking at about 2,931 on September 20th, the S&P 500 Index has declined to 2760 at the end of November and this pencils out to a price decline of -5.83%. At the same time, we saw the 10-year Treasury reach a peak of 3.24% on November 8th and the yield has trailed down to 3.10% as of the end of November. There is growing concern that the global trade spats are starting to have real economic consequences and we are waiting to see if the U.S. and China can come to some accommodation to put this behind them.

Largely, we have moved from a period of apparent and coordinated global economic growth that transitioned to a U.S. led continuation of the current growth cycle. More recently, we are seeing evidence of a slight pullback in global growth. It will be important to see how U.S. economic data fares as to whether this is a blip in a continuation of economic expansion or the start of a correction or perhaps even the first move to a recession. We are certainly in the camp that recession is not likely in 2019, but might be on the table for 2020. Again, this is all data dependent.

As an avowed bond guy, I watch the level and yield curve like a hawk. There is something almost tribal about fixed income analysts and the yield curve. We attempt to read level, shape and slope as though they are tea leaves that allow us to somehow divine the future.  Currently, the yield curve is pretty darn flat with the yield differential between 2-year Treasuries and 10-year Treasuries at a paltry 25 basis points. Pretty flat indeed.

Market watchers are looking to see if this flatness gives way to inversion, whereby longer dated yields are lower than shorter dated yields. The presence of an inverted curve has typically meant economic slowdown while a very steep curve has typically presaged inflation. As the Treasury market has been pretty well managed by the Fed, the old rule book seems to be more like a guide book. Our focus is now how much has the Fed (via the impact on supply and demand technical factors) has impacted the level of the yield curve and the relative steepness of shorter dated rates versus longer dated rates. Right now, the main focus is on whether or not the flatness of the curve is indicating a looming recession.

In a typical recession, it is not unusual to have an inverted yield curve. Given the recent significant level of Fed activity in purchasing bonds, the shape of the yield curve may be less predictive than in previous economic cycles. Ultimately, we think the Fed is raising rates in response to economic conditions to normalize interest rates. While the Fed still has a bloated balance sheet, there is still a distorted impact on interest rates so we do not believe that the current shape of the curve is predicting an imminent recession. We do think that a continuing trade spat with China coupled with mischief from Washington could hasten the onset of the next recession.

I do not think that one can conclude a discussion on interest rates without discussing the impact of China. Since the market peak in September, we have been in a period of fits and starts with China over trade. For many years, U.S. Presidents hoped that bringing China to the table would cause them to act like other developed countries. The reality is that China has always acted with a China First policy no matter how much they mouth the words about global trade. People have started to look at China as a more petulant adult than a teenager with great promise, if only they would behave!

To this point, the tariff war has hurt China more than the U.S, however, that is no guarantee that this particular trend will continue. We do believe that the U.S economy will continue to show growth and will likely keep any domestic recession at bay for 2019. Europe is having more challenges as Brexit and a rough go of it for the Italian budget are both looming heavily over the continent. Lastly, China is significantly important to the performance of the broad Asian economy, but they have been faltering more recently. If China and the U.S. can reach some level of consensus, this could alter investor sentiment and return a level of buoyancy to the stock market. On the other hand, if the spat continues, maybe the flat curve will have something to say about this after all.

Until next month.


Core Bond Fund

One Month
(as of 11/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Core Bond Fund-I Shares 0.42% -1.07% 1.80% 1.45%
Bloomberg Barclays US Aggregate Bond Index 0.60% -1.22% 1.31% 1.09%
Lipper Core Bond Fund Average 0.36% -1.23% 1.44% 1.00%
Lipper Percentile Rank 31% 27%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 522 (1 Year) and 461 (3 Year).
Gross Expense Ratio 1.04%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 11/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Limited Duration Fund-I Shares 0.20% 0.37% 0.94% 0.88%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.29% 0.20% 0.73% 0.79%
Lipper Short Investment Grade Debt Fund Average 0.07% 0.64% 1.42% 1.17%
Lipper Percentile Rank 63% 72%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 362 (1 Year) and 321 (3 Year).
Gross Expense Ratio 1.01%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 11/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Large Cap Growth Fund-I Shares 0.23% 25.20% 17.13% 11.77%
Russell 1000 Growth Index 1.06% 26.30% 20.55% 14.81%
Lipper Multi-Cap Growth Fund Average 1.51% 22.92% 17.11% 11.61%
Lipper Percentile Rank 31% 50%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 554 (1 Year) and 492 (3 Year).
Gross Expense Ratio 1.34%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 11/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Large Cap Value Fund-I Shares 3.32% 12.75% 14.24% 8.81%
Russell 1000 Value Index 2.99% 9.45% 13.55% 8.14%
Lipper Multi-Cap Value Fund Average 2.16% 9.47% 12.85% 7.43%
Lipper Percentile Rank 16% 22%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 403 (1 Year) and 331 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 11/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Small Cap Equity Fund-I Shares 1.40% 10.32% 12.58% 8.53%
Russell 2000 Index 1.59% 15.24% 17.12% 10.81%
Lipper Small Cap Fund Average 1.42% 11.97% 14.64% 9.25%
Lipper Percentile Rank 62% 80%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 993 (1 Year) and 833 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 11/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
International Equity-I Shares -0.65% 6.01% 13.51% 6.61%
FTSE All World Ex US Index 0.95% 2.43% 10.51% 4.76%
Lipper International Multi-Cap Fund Average -0.02% 1.14% 8.56% 3.82%
Lipper Percentile Rank 4% 1%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 403 (1 Year) and 344 (3 Year).
Gross Expense Ratio 1.56%, Net Expense Ratio 1.10%.

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. For performance data current to the most recent month end, please call 1-844-KC-FUNDS.

Fund performance for the 1 year and Inception to Date period 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 28, 2019.

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.

Consumer Price Index – The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services.

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 227 out of 362 funds measured for the one year ranking period and ranked 230 out of 321 funds measured for the three year ranking period as of September 30, 2018.

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 161 out of 522 funds measured for the one year ranking period and ranked 126 out of 461 funds measured for the three year ranking period as of September 30, 2018.

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 172 out of 554 funds measured for the one year ranking period ranked and 247 out of 492 funds measured for the three year ranking period as of September 30, 2018.

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 64 out of 403 funds measured for the one year ranking period and ranked 74 out of 331 funds measured for the three year ranking period as of September 30, 2018.

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 618 out of 993 funds measured for the one year ranking period and ranked 667 out of 833 funds measured for the three year ranking period as of September 30, 2018.

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 15 out of 401 funds measured for the one year ranking period and ranked 1 out of 344 funds measured for the three year ranking period as of September 30, 2018.