Market Insights


June 2020

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

Well that was an interesting month! After seeing the near-term low on the S&P 500  of 2237 on March 23, we have seen the index trade back through 3,000 and end the month of May at 3,044. This resulted in a price return from the low on March 23rd through the end of May over 36%. The old adage that markets often climb a “wall of worry” seems to have been replaced with the stock market is currently trading on hope and aspirations. 

I am still firmly in the camp of nobody knows for sure where we go from here. It feels that the market moves higher on every positive news item for a vaccine. It has been an interesting discussion in my house with my wife likening the safety of a potentially hastily produced vaccine to the safety of the carnival rides that travel from town to town. My daughter, a rising junior at Marquette University and a Biomedical Science major, is equally dubious and has the closest thing to an educated opinion on this matter in my house. I am personally more enthusiastic and the only person to get an annual flu shot in the Minopoli household and my son, an electrician, also thinks this is a bit rushed and he would rather take his chances with a ticket on the Titanic. 

Beyond vaccine speculation there have been more pundits discussing whether the low has been put in or predicting the next leg down. We are fundamentalists at KoCAA and we’re believing the equity market of 2019 pulled forward some of the 2020 potential return…and then we got this little import and then the big sell off. In our opinion, the market went from equally valued, to way undervalued, to something approaching fairly valued once again. The people on the bullish side of this market are focused on where we were: near full employment, low inflation, low interest rates, high consumer confidence, high corporate confidence and a seeming second term for a Republican President. The people believing this is entirely false are focused on: a resurgent second wave, the probability of having a vaccine near term, the destruction of jobs and are selecting a check mark or “W” as their shape of choice for a resurgent market and economy.

We are at an interesting inflection point because the economic releases are extremely negative, and we believe that second quarter economic indicators are not going to be more encouraging. The capital markets are essentially looking across the valley of these negative numbers and focusing on the expected positive economic activity as the opening of the economy continues. It is interesting, and I believe this is where politics comes into play, the economic activity in the third quarter of this year has the ability to be the best economic performance in recent history. The conspiracy theorists will tell you that they believe Democratic controlled states want to keep the economy as closed as long as possible because a strong third quarter rebound could be helpful in propelling Trump to a second term. 

I always try to look through all the rhetoric to determine key markers. We are very focused on employment levels and the reabsorption of those that have been furloughed or laid off. One of the virtues of the economy up until COVID-19 was one marked by an increasing level of employment across the socio-economic spectrum. Our economy is consumer driven and the more people working and consuming the better the economy will perform, and this can create a very virtuous economic environment. In my view, if people are very slowly absorbed back into the workforce, the rebound will be longer and potentially more halting. The employment market, we believe, will be the tea leaves worth reading to help us understand what the economy looks like and the potential of economic activity as we move into the fourth quarter of this year and further into 2021.

We also have two other factors clouding the current scenario. First, the President has raised rhetoric against the Chinese, after they announced a slowdown in the purchasing of U.S. agricultural products which could jeopardize Phase I of our trade agreement with China. I remain supportive that we need to better define our relationship with China. This period of time while we define what that relationship looks like could cause volatility within the markets. I believe, President Trump is justified in his actions, but it does not mean that the road won’t be bumpy.

The second issue is the significant social unrest that is occurring as a result of the senseless death of George Floyd. I will leave the social commentary to others, but I continue to pray for an end to the riots and looting and creation of space for the peaceful protests. From our focus here on the economy, the nexus of this situation with COVID-19 risks the possibility of some localized hot spots and the potential for stay at home or increased social distancing. All of these factors all have the ability to feed on one another and create significant variability in the markets.

We ultimately believe that the re-opening of the economy will help get the economy moving and the absorption of workers. We watch this absorption of workers as a key data point on the solidity of the rebound. In our view, the U.S. – China jostling will continue but we need to read through the headlines to analyze what is actually happening. We are also hoping and praying for a quelling of the social unrest that is met with solutions that will allow us to all move forward together as one America. Lastly, we continue to study the pharmaceutical market to determine the possibility/probability of a therapy and, ultimately, a vaccine. It would be an understatement to say there is a quite a bit going on at the moment.

Until next month.



 

Core Bond Fund

One Month
(as of 5/31/20)
YTD
(as of 5/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Core Bond Fund-I Shares 0.87% 2.18% 5.60% 3.81% 2.94%
Bloomberg Barclays US Aggregate Bond Index 0.47% 5.47% 8.93% 4.82% 3.39%
Lipper Core Bond Fund Average 1.12% 4.08% 5.79% 3.61% 2.64%
Lipper Percentile Rank 60% 48%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 509 (1 Year) and 456 (3 Year). Gross Expense Ratio 0.84%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 5/31/20)
YTD
(as of 5/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Limited Duration Fund-I Shares 0.81% 0.74% 0.99% 1.51% 1.23%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.33% 2.92% 4.53% 2.58% 1.91%
Lipper Short Investment Grade Debt Fund Average 1.23% 0.41% 0.12% 1.27% 1.23%
Lipper Percentile Rank 40% 43%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 370 (1 Year) and 320 (3 Year). Gross Expense Ratio 0.82%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 5/31/20)
YTD
(as of 5/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Large Cap Growth Fund-I Shares 8.38% 4.43% -3.19% 7.52% 6.19%
Russell 1000 Growth Index 6.71% 5.23% 0.91% 11.32% 9.92%
Lipper Multi-Cap Growth Fund Average 8.62% 5.41% -5.20% 8.03% 6.58%
Lipper Percentile Rank 38% 49%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 540 (1 Year) and 479 (3 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 5/31/20)
YTD
(as of 5/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Large Cap Value Fund-I Shares 4.08% -16.50% -18.13% -1.81% 1.40%
Russell 1000 Value Index 3.43% -15.70% -17.17% -2.18% 1.59%
Lipper Multi-Cap Value Fund Average 3.77% -17.67% -20.76% -4.32% -0.27%
Lipper Percentile Rank 32% 20%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 483 (1 Year) and 419 (3 Year). Gross Expense Ratio 1.06%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 5/31/20)
YTD
(as of 5/31/20)
1 Year
(as of 4/30/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Small Cap Equity Fund-I Shares 5.95% -17.90% -27.07% -6.65% -2.27%
Russell 2000 Index 6.51% -15.95% -23.99% -4.64% 0.10%
Lipper Small Cap Fund Average 5.44% -19.75% -26.46% -7.25% -1.56%
Lipper Percentile Rank 55% 44%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 916 (1 Year) and 837 (3 Year). Gross Expense Ratio 1.14%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 5/31/20)
YTD
(as of 5/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
International Equity-I Shares 4.33% -15.64% -20.24% -1.79% -0.19%
FTSE All World Ex US Index 3.62% -14.48% -15.05% -1.60% -0.39%
Lipper International Multi-Cap Fund Average 4.65% -14.37% -16.22% -3.38% -1.75%
Lipper Percentile Rank 90% 19%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 411 (1 Year) and 361 (3 Year). Gross Expense Ratio 1.36%, Net Expense Ratio 1.10%.

Global Real Estate

One Month
(as of 5/31/20)
YTD
(as of 5/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Global Real Estate-I Shares -0.59% -17.87% - - -
FTSE EPRA/NAREIT Developed Index 0.29% -23.01% - - -
Lipper Real Estate Average 1.67% -16.55% - - -
Lipper Percentile Rank - -

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Real Estate Classification. Number of Funds in Category: 258 (1 Year) and 228 (3 Year). Gross Expense Ratio 1.43%, Net Expense Ratio 1.00%.

Long-Short Equity Fund

One Month
(as of 5/31/20)
YTD
(as of 5/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
Long-Short Equity – I Shares -1.86% -10.36% - - -
HFRX Equity Market Neutral Developed Index 2.01% -6.80% - - -
Lipper Long-Short Average 1.82% 2.56% - - -
Lipper Percentile rank - -

*Lipper Percentile Rank is based on risk-adjusted performance.
Classification. Number of Funds in Category: 285 (1 Year) and 227 (3 Year)
Gross Expense Ratio 2.03%, Net Expense Ratio 1.70%.

U.S. All Cap Index Fund

One Month
(as of 5/31/20)
YTD
(as of 5/31/20)
1 Year
(as of 3/31/20)
3 Years
(as of 3/31/20)
Since Inception
(as of 3/31/20)
U.S. All Cap Index – I Shares 5.90% -6.09% - - -
Knights of Columbus U.S. All Cap Index 6.21% -5.72% - - -
Lipper Large Blend Average 5.62% -7.45% - - -
Lipper Percentile rank - -

*Lipper Percentile Rank is based on risk-adjusted performance.
Classification. Number of Funds in Category: 707 (1 Year) and 627 (3 Year).
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, 3 year, and Since Inception periods 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, 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 EPRA/Nareit Developed Index – benchmark for Global Real Estate Fund – The FTSE EPRA/Nareit Developed Index is a free-float adjusted, market capitalization-weighted index designed to track the performance of listed real estate companies in developed countries worldwide. Constituents of the index are screened on liquidity, size, and revenue.

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 dollarweighted average maturities of less than three years. The Limited Duration Bond fund ranked 151 out of 370 funds measured for the one year ranking period and ranked 139 out of 320 funds measured for the three year ranking period as of March 31, 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 306 out of 509 funds measured for the one year ranking period and ranked 218 out of 456 funds measured for the three year ranking period as of March 31, 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 204 out of 540 funds measured for the one year ranking period ranked and 236 out of 479 funds measured for the three year ranking period as of March 31, 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 155 out of 483 funds measured for the one year ranking period and ranked 83 out of 419 funds measured for the three year ranking period as of March 31, 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 503 out of 916 funds measured for the one year ranking period and ranked 371 out of 837 funds measured for the three year ranking period as of March 31, 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 370 out of 411 funds measured for the one year ranking period and ranked 68 out of 361 funds measured for the three year ranking period as of March 31, 2020.

Lipper Real Estate Classification – peer group for Global Real Estate
Funds that invest at least 25%, but less than 75%, of the equity portfolios in shares of companies engaged in the real estate industry that are strictly outside of the U.S. or whose securities are principally traded outside of the U.S.