Market Insights


July 2018

By: Tony Minopoli, CIO of the Knights of Columbus

I have had a lot of time to think lately as my wife is recovering from disc surgery in her neck. While she was in surgery, I kept pondering how fragile the balance of life can be. In a certain sense, Karen went about her daily life until a disintegrating disc caused compression of a nerve that controls much of the function in the right arm. Thankfully, her surgery was successful and she is on the mend, but it did get me to thinking about the fragility of the balance across the capital markets and what it means for investors.

Last month, I wrote about the historic meeting between the United States and North Korea. Since the cease fire was announced in the Korean War, many U.S. presidents discussed the ability to get the North Koreans to the table in order to bring peace and stability to the Korean Peninsula. This fragility has always caused unease across the DMZ together with the threat that the U.S. would devastate North Korea if any harm came to South Korea. To maintain the survival of his regime, Kim Jong Un realized that President Trump is likely brazen enough to order a preemptive strike given North Korea’s current atomic arsenal and their aspirations for an even larger nuclear weapons cache. Both sides made boastful claims coming out of the summit, but it seems, at the very least, that progress has been made.

One other area of fragility within the capital markets has been the long era of low inflation. The last time we had an inflation reading of 3% or greater, as measured by the Consumer Price Index (“C.P.I”) (for a year-over year period) was December 2011. We had a period of above 3% readings from April 2011 through December 2011 and you have to go back to 2008 to see the previous reading of inflation above 3%. I raise this as an issue because in our opinion, we certainly have the seeds for inflation coming from both an increase in commodity prices as well as the tightness of the labor market. With commodity prices increasing, particularly energy, the tightness of the labor market may also lead to wage driven inflation. The potential for a trade war adds to our inflation prediction model because added tariffs will only serve to drive up the end price that businesses and consumers pay for both goods and services.

The most recent readings for inflation, as measured by C.P.I, show headline price increases at 2.8% and the core inflation rate at 2.2%. We believe that rates are still low enough, even if the Fed drives short rates to 3%, that the U.S. economy can withstand the increase in rates and still have economic growth. Those investors that have been financing trades with short term borrowed money might not be too happy, but the economy should be able to withstand a higher short term rate and still provide economic growth.

The topic of fragility also came to mind with the reports over the weekend that Sarah Sanders and her family were asked to leave the Red Hen restaurant and the lunacy of California State Representative Maxine Waters’ call for driving members of the administration out of public places. This morning I read that Sarah Sanders would be receiving protection from the Secret Service. She might be the first press secretary to ever receive preemptive protection from the Secret Service. Our civil discourse needs to be civil and the media continues to provide coverage of stories of groups like Antifa and others that want to deny anyone that shares a view contrary to their own. Our country is not perfect, but our perfect union has been allowed to flourish because of a broad range of ideas and plans of how to drive the country forward. Nothing is forever and my general optimism is somewhat shaken that the country is being driven by extreme ideologies with little regard for the long term impact on the country.

Now, we do believe that there will be a peaceful resolution to the North Korean situation and Kim Jong Un wants to protect his regime so that will bring his country to the table. From an economic perspective, we do believe there is more than a small amount of inflationary pressure in the system, but not enough to derail the economic expansion. Cooler heads on both the left and the right are starting to condemn the ranting’s of Maxine Waters and maybe we will see the beginnings of a return to the necessary discourse that will keep us moving forward.

Over the short term, we believe that there will be volatility in the markets as investors try to discern the impact of potential “full-on” trade wars. The interconnectedness of the global economy leads us to believe that these protectionist measures are really a way of achieving new and more balanced trade agreements. Corporate earnings remain strong and there is tremendous demand for new workers in the U.S. If the dollar continues to weaken, we believe this will be positive for Emerging Markets and could add an inning or two to the current global growth story. Yes, a fragility does exist in today’s economy, but we believe there remain enough positive forces to keep global markets in balance, but that doesn’t mean those markets won’t have a few bumps along the way.

Until next month.



1The Consumer Price Index (C.P.I), calculated by the U.S. Bureau of Labor Statistics, is a measure of average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Core Bond Fund

One Month
(as of 6/30/18)
1 Year
(as of 6/30/18)
3 Years
(as of 6/30/18)
Since Inception
(as of 6/30/18)
Core Bond Fund-I Shares -0.20% -0.28% 2.16% 1.52%
Bloomberg Barclays US Aggregate Bond Index -0.12% -0.40% 1.72% 1.17%
Lipper Core Bond Fund Average -0.13% -0.52% 1.60% 1.05%
Lipper Percentile Rank 27% 16%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 520 (1 Year) and 457 (3 Year).
Gross Expense Ratio 1.04%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 6/30/18)
1 Year
(as of 6/30/18)
3 Years
(as of 6/30/18)
Since Inception
(as of 6/30/18)
Limited Duration Fund-I Shares -0.07% 0.34% 0.83% 0.78%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.01% 0.21% 0.71% 0.75%
Lipper Short Investment Grade Debt Fund Average 0.26% 0.85% 1.03% 1.06%
Lipper Percentile Rank 61% 67%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 340 (1 Year) and 290 (3 Year).
Gross Expense Ratio 1.01%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 6/30/18)
1 Year
(as of 6/30/18)
3 Years
(as of 6/30/18)
Since Inception
(as of 6/30/18)
Large Cap Growth Fund-I Shares 0.98% 21.63% 11.47% 10.13%
Russell 1000 Growth Index 0.96% 22.51% 14.98% 13.01%
Lipper Multi-Cap Growth Fund Average 0.62% 20.60% 11.46% 10.31%
Lipper Percentile Rank 40% 52%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 526 (1 Year) and 469 (3 Year).
Gross Expense Ratio 1.34%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 6/30/18)
1 Year
(as of 6/30/18)
3 Years
(as of 6/30/18)
Since Inception
(as of 6/30/18)
Large Cap Value Fund-I Shares -0.89% 10.60% 9.58% 7.79%
Russell 1000 Value Index 0.25% 6.77% 8.26% 6.98%
Lipper Multi-Cap Value Fund Average 0.16% 8.41% 7.65% 6.48%
Lipper Percentile Rank 20% 16%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 377 (1 Year) and 315 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 6/30/18)
1 Year
(as of 6/30/18)
3 Years
(as of 6/30/18)
Since Inception
(as of 6/30/18)
Small Cap Equity Fund-I Shares 0.49% 13.85% 8.06% 8.36%
Russell 2000 Index 0.72% 17.57% 10.96% 10.50%
Lipper Small Cap Fund Average 0.59% 13.99% 9.37% 8.94%
Lipper Percentile Rank 55% 76%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 985 (1 Year) and 814 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 6/30/18)
1 Year
(as of 6/30/18)
3 Years
(as of 6/30/18)
Since Inception
(as of 6/30/18)
International Equity-I Shares -2.20% 13.20% 8.56% 7.25%
FTSE All World Ex US Index -1.90% 7.58% 5.59% 4.84%
Lipper International Multi-Cap Fund Average -1.88% 6.01% 4.56% 4.07%
Lipper Percentile Rank >1% >1%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 416 (1 Year) and 329 (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, 2018.

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 184 out of 325 funds measured for the one year ranking period and ranked 184 out of 282 funds measured for the three year ranking period as of June 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 63 out of 512 funds measured for the one year ranking period and ranked 60 out of 444 funds measured for the three year ranking period as of June 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 281 out of 486 funds measured for the one year ranking period ranked and 252 out of 440 funds measured for the three year ranking period as of June 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 60 out of 350 funds measured for the one year ranking period and ranked 59 out of 302 funds measured for the three year ranking period as of June 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 159 out of 991 funds measured for the one year ranking period and ranked 585 out of 812 funds measured for the three year ranking period as of June 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 5 out of 420 funds measured for the one year ranking period and ranked 9 out of 330 funds measured for the three year ranking period as of June 30, 2018.