Market Insights


February 2019

By: Tony Minopoli, CIO of the Knights of Columbus

I was stopped this morning by Joseph Novak of our marketing group inquiring as to when I was going to finish this month’s commentary. I told him I would get on it and needed to just focus on the topic of the month. Obviously, we had a strong rebound in the stock market and appears that we have had, at a minimum, a change in sentiment within the Federal Reserve ("Fed”). As I usually do, I try to check in with everyone on both the investment and marketing teams to see what they are focusing on and to see if I can be of any help. After receiving my writing assignment from Joe I stopped in to see Paul McMahon, one of our Marketing Directors. During our discussion, he said that some loyal readers of this column inquired as to our thoughts for the equity market going forward. Here we go.

The S&P 500 ended 2018 at a level of 2,507. As of January 31, 2019, the index stood at 2,704, a percentage gain of nearly 7.9%, excluding dividends, which reversed the loss of -6.24% in the index for 2018. During the same time period, we saw the 10-year Treasury (“10-Year”) move from 2.69% to 2.63% and as of this morning (February 7th), the 10-Year is trading at 2.67%. Nothing to see in the rates market folks, except the 2019 moves by the Fed have been handicapped by prognosticators to either be on a pause or at least materially temper the number of near-term rate increases. Also, inflation measures have cooled and despite continued success in the employment market, we have not witnessed dramatically increasing wages. Our theory is that the labor participation rate[1] is standing at 63.2%, better than the low of 62.4% in September 2015, but equally well below the high of 67.3 from January 2000. In other words, the labor market is better, but it still isn’t great. Average hourly earnings did grow 3.4% versus January 2018, but this is below the approximately 4% growth we believe is required to cause a bout of wage push inflation.

I don’t think anyone should sound the all clear horn because the “wall of worry” is plenty high. In no particular order of importance, we still have the showdown of government funding and the wall, barrier or whatever name one would like to give to a fence the President would like to construct along part of our southern border. Divided government is alive and well, and new investigations and inquiries looking into President Trump’s activities, potential emoluments, and Russian collusion have been launched. We have the ongoing tariff spat with China and the Middle East certainly hasn’t gotten any better. We are also now engaged with trying to help fix Venezuela and the Russians seem to want to poke us in the eye on that issue if for no other reason than to be antagonists.

This brings me to our thoughts for where we are and where we might be heading. Regular readers know that I have always espoused that I am not a market timer. I am a true believer in long term asset allocation strategy and a reassessment of goals on a regular basis. The asset allocation structure one employs should be a direct result of their long investment goals. If capital is needed in less than three years, cash is the right bucket. Bonds not only provide diversification to a portfolio, they also help mitigate potential volatility and provide income. An investor with a horizon of 3 to 5 years is well suited for bonds and one that has a longer view certainly can take equity risk.

With that as a framework, we believe that stocks could return 6% to 8%  for the asset class, with a bias more toward the 6% level. Here are the wildcards, if we see continued improvement in the employment market, coupled with wage growth and productivity improvements, equities can do quite well. This will be an even better scenario if inflation remains tame. However, we have witnessed that the index of Leading Indicators[2] has been negative in two of the last three months and the Fed sentiment change could spook investors under the theory of what they know that they might not be sharing with the rest of us. With bond rates low, investors with a long-term horizon should maintain an equity allocation. Please feel free to reach out to us if you would like to discuss your specific situation.

I am reminded of my father-in-law’s insistence of significantly reducing his risk posture…in early 2009. As you may recall, the market hit the low in March 2009 and then rebounded substantially. His investment horizon didn’t change. His constant checking of his account became a daily ritual. Big mistake. As I just discussed with a client, focus on your investment horizon, liquidity needs and risk tolerance and then build your asset allocation. If any of these key items changes that is the key time to review your asset allocation and consider changes. While we do not think we are going to see returns like the 1990’s, we are still constructive on stocks, believe recession risk is low for 2019 and implore you to consider all of the facets and decisions that go into your asset allocation structure before making a change, or risk becoming a market timer.

Until next month.



1 Labor participation rate refers to the number of people available for work as a percentage of total population.


2 Leading Indicators are statistics that help predict changes in the economy.

Core Bond Fund

One Month
(as of 01/31/19)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
Core Bond Fund-I Shares 1.04% -0.72% 2.29% 1.60%
Bloomberg Barclays US Aggregate Bond Index 1.06% 0.01% 2.06% 1.45%
Lipper Core Bond Fund Average 1.30% -0.69% 1.99% 1.18%
Lipper Percentile Rank 54% 28%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 506 (1 Year) and 442 (3 Year).
Gross Expense Ratio 1.04%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 01/31/19)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
Limited Duration Fund-I Shares 0.51% 1.13% 1.31% 1.00%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.39% 1.60% 1.24% 1.05%
Lipper Short Investment Grade Debt Fund Average 0.71% 1.03% 1.67% 1.19%
Lipper Percentile Rank 46% 67%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 357 (1 Year) and 317 (3 Year).
Gross Expense Ratio 1.01%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 01/31/19)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
Large Cap Growth Fund-I Shares 9.07% -4.99% 7.40% 5.36%
Russell 1000 Growth Index 8.99% -1.51% 11.15% 8.77%
Lipper Multi-Cap Growth Fund Average 9.64% -2.95% 8.41% 5.84%
Lipper Percentile Rank 65% 64%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 543 (1 Year) and 487 (3 Year).
Gross Expense Ratio 1.34%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 01/31/19)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
Large Cap Value Fund-I Shares 9.49% -8.69% 6.52% 4.07%
Russell 1000 Value Index 7.78% -8.27% 6.95% 4.15%
Lipper Multi-Cap Value Fund Average 9.20% -11.42% 5.63% 2.62%
Lipper Percentile Rank 23% 32%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 409 (1 Year) and 345 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 01/31/19)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
Small Cap Equity Fund-I Shares 13.02% -15.61% 4.00% 1.63%
Russell 2000 Index 11.25% -11.01% 7.36% 3.79%
Lipper Small Cap Fund Average 10.83% -12.67% 5.86% 2.79%
Lipper Percentile Rank 76% 78%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 967 (1 Year) and 823 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 01/31/19)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
International Equity-I Shares 9.95% -12.43% 6.87% 2.83%
FTSE All World Ex US Index 7.46% -13.87% 4.89% 1.20%
Lipper International Multi-Cap Fund Average 7.20% -15.07% 2.48% -0.06%
Lipper Percentile Rank 15% 1%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 385 (1 Year) and 337 (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. 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 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 165 out of 357 funds measured for the one year ranking period and ranked 212 out of 317 funds measured for the three year ranking period as of December 31, 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 274 out of 506 funds measured for the one year ranking period and ranked 125 out of 442 funds measured for the three year ranking period as of December 31, 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 355 out of 543 funds measured for the one year ranking period ranked and 314 out of 487 funds measured for the three year ranking period as of December 31, 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 95 out of 409 funds measured for the one year ranking period and ranked 111 out of 345 funds measured for the three year ranking period as of December 31, 2018.

Lipper Small-Cap Core Classification – benchmark for Small Cap Fund
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 734 out of 967 funds measured for the one year ranking period and ranked 641 out of 823 funds measured for the three year ranking period as of December 31, 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 56 out of 385 funds measured for the one year ranking period and ranked 1 out of 337 funds measured for the three year ranking period as of December 31, 2018.