Market Insights


June 2021

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

When is temporary not temporary? The Federal Reserve (“Fed”) has continued to describe the inflation environment as transitory and, as I wrote last month, we are waiting on our judgment until we get through the end of July. Our patience is tied to our being a long-term investor as well as wanting to see the inflation comparison against the year over year statistics compared to June 2020 and July 2020, not only May. The key is that annual consumer prices bottomed at 0.1% in May 2020. We are more acutely watching the inflation rate as compared to July and August of last year when the economy began to open. The evaluation is whether this is transitory inflation or if we are starting another inflationary cycle.

As the economy began to reopen late in the second quarter of 2020, we started to see a pickup in inflation. As of the end of the first quarter 2021, gross domestic product (“GDP”) grew by 6.4% for the prior three months and 0.4% over the trailing four quarters, erasing the -9.0% annual GDP growth rate ending June 2020. Of course, the big story of the day is inflation and we saw the headline rate grow to a 4.2% annual rate and a 3.0% growth rate factoring out food and energy.

Employment and the Economy

Regular readers know that I am focused on the employment market because our economy is so heavily reliant on consumer spending. The April 2021 increase in nonfarm payrolls was 266,000 jobs, when the consensus was for about 1 million new jobs. This prompted many people to suspect that maybe this recovery was a bit too fragile and not quite ready for prime time. In my view, anyone concerned that labor demand was weak should look to the Jobs Openings and Labor Turnover Survey (“JOLTS”) job openings report which, as of May 11, 20211, showed an increase of about 600,000 jobs to a record of over 8.1 million openings. As more states reduce the enhanced unemployment benefits, we believe we will see more of these people come back to the labor market.

This level of jobs activity may produce pressure on wages and this, in turn, could lead to a further bout of wage led inflation. We are also seeing significant price pressures on a variety of raw materials. I am not sure when “just in time” inventory became a thing, but I do know that it is often attributed to Toyota. The theory is that companies maintain very lean inventory, ordering what they need so as not to have too much working capital tied up in inventory which, theoretically, can maximize both efficiency and profitability. This all works predicated on an efficient and smooth supply chain. When the supply chain broke due to Covid, we are now seeing hoarding of certain raw materials which is pressuring an already stressed supply chain and causing significant pricing pressures in certain industries.

We are also starting to see inflation in raw materials and the combination of raw material shortages, demand for finished goods and a high demand for labor, particularly in several specialized areas, may, in our view,cause inflation. There has been considerable coverage in the financial press that the rise in consumer savings, which leaves a lot of “dry powder” in the hands of consumers, could cause significant demand led inflation. That said, we are trying to discern whether the excess savings is being viewed as wealth or excess savings. If these savings are viewed as wealth, it is likely that it will be spent more slowly because wealth is not viewed as transactional. If the excess savings are viewed as savings, this could be the source of the consumer led demand. These items represent a few of the factors we are considering as the world continues to emerge from Covid.

During May, the S&P 500 retuned 0.7% as stocks vacillated between the good news of reopening balanced against potential inflation and continued virus variants around the world. The 10-year Treasury ended April with a yield of 1.63% and was essentially unchanged as the May month end yield stood at 1.60%. The continued open market activities of the Fed have allowed for inflation concerns to be tempered by strong, continuous demand for Treasuries. As we move through the next few months, we will see whether this current inflation theme is transitory. Since so many people are “singing from the hymnal” that inflation is not going to stick, it does have me wondering whether their opinion is based more on hope than reason.

Many blame the high level of current job openings on the impact of supplemental unemployment benefits. There have been numerous research reports questioning whether the lasting impacts of Covid on childcare and fear of getting the virus are the real factors keeping people from re-entering the work force. No matter, the enhanced support will end, and we will then be able to see whether the workers come back into the labor force or stay on the sidelines. I do believe that the level of unfilled jobs will cause aggregate wages to increase because it will take getting more money from an employer and less money from the government to drive people back into the employment pool.

Returning to the Office vs Remote Work

The other emerging topic we are watching is how the service economy reopens with respect to work from home versus back to the office. I have been working from our office about three days a week for the last several months and have enjoyed being around my colleagues. I have also noticed recently that the morning and afternoon commutes are becoming very much like my pre-Covid commutes. I am more concerned about the social issues, specifically the ability to drive a culture and difficulties of truly growing the next generation of leaders from a remote work environment. Before anyone says, “Ok Boomer”, I am a month shy of 53 years of age and the front end of Generation X. That said, I learned by being exposed to my more experienced colleagues and I am interested to see how we truly develop remote leaders in a changed environment. Finally, we are looking to see if the severe economic impact on central business district continues to work from home becomes more pronounced. Can local service providers survive? There is much to unpack as we try to figure out the future of work, inflation, and wages. I believe June and July data will be important to help us shape our future investment thesis on these matters. We shall see.

Until next month’s market insights report.

1 https://www.bls.gov/jlt/



Core Bond Fund

One Month
(as of 5/31/21)
YTD
(as of 5/31/21)
1 Year
(as of 3/31/21)
5 Years
(as of 3/31/21)
Since Inception
(as of 3/31/20)
Core Bond Fund-I Shares 0.19% -1.59% 4.87% 3.57% 3.26%
Bloomberg Barclays US Aggregate Bond Index 0.33% -2.29% 0.71% 3.10% 2.95%
Lipper Core Bond Fund Average 0.29% -1.85% 4.70% 3.43% 3.01%
Lipper Percentile Rank 42% 41%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 505 (1 Year) and 414 (5 Year). Gross Expense Ratio 0.84%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 5/31/21)
YTD
(as of 5/31/21)
1 Year
(as of 3/31/21)
5 Years
(as of 3/31/21)
Since Inception
(as of 3/31/21)
Limited Duration Fund-I Shares 0.10% 0.30% 5.14% 2.13% 1.86%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.12% 0.16% 1.57% 2.00% 1.85%
Lipper Short Investment Grade Debt Fund Average 0.19% 0.46% 6.48% 2.43% 2.05%
Lipper Percentile Rank 67% 68%

*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 293 (5 Year). Gross Expense Ratio 0.82%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 5/31/21)
YTD
(as of 5/31/21)
1 Year
(as of 3/31/21)
5 Years
(as of 3/31/21)
Since Inception
(as of 3/31/21)
Large Cap Growth Fund-I Shares 1.35% 4.98% 59.03% 17.30% 13.48%
Russell 1000 Growth Index 1.38% 6.32% 62.74% 21.05% 17.23%
Lipper Multi-Cap Growth Fund Average 1.75% 5.29% 71.60% 20.08% 15.51%
Lipper Percentile Rank 75% 71%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 507 (1 Year) and 406 (5 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 5/31/21)
YTD
(as of 5/31/21)
1 Year
(as of 3/31/21)
5 Years
(as of 3/31/21)
Since Inception
(as of 3/31/21)
Large Cap Value Fund-I Shares 2.47% 21.56% 58.29% 12.20% 9.10%
Russell 1000 Value Index 2.33% 18.41% 56.09% 11.74% 9.01%
Lipper Multi-Cap Value Fund Average 2.65% 20.33% 63.68% 11.47% 8.52%
Lipper Percentile Rank 58% 33%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 581 (1 Year) and 462 (5 Year). Gross Expense Ratio 1.06%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 5/31/21)
YTD
(as of 5/31/21)
1 Year
(as of 3/31/21)
5 Years
(as of 3/31/21)
Since Inception
(as of 3/31/21)
Small Cap Equity Fund-I Shares -0.55% 15.35% 89.40% 12.62% 8.96%
Russell 2000 Index 0.21% 15.30% 94.85% 16.35% 11.66%
Lipper Small Cap Fund Average 1.35% 21.51% 89.09% 12.95% 9.62%
Lipper Percentile Rank 49% 52%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 899 (1 Year) and 726 (5 Year). Gross Expense Ratio 1.14%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 5/31/21)
YTD
(as of 5/31/21)
1 Year
(as of 3/31/21)
5 Years
(as of 3/31/21)
Since Inception
(as of 3/31/21)
International Equity-I Shares 3.28% 14.71% 59.26% 11.81% 7.77%
FTSE All World Ex US Index 3.19% 10.30% 50.97% 10.37% 6.65%
Lipper International Multi-Cap Fund Average 3.50% 10.87% 47.76% 8.51% 5.36%
Lipper Percentile Rank 11% 1%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 370 (1 Year) and 280 (5 Year). Gross Expense Ratio 1.39%, Net Expense Ratio 1.10%.

Real Estate Fund

One Month
(as of 5/31/21)
YTD
(as of 5/31/21)
QTD
(as of 3/31/21)
1 Year
(as of 3/31/21)
Since Inception
(as of 3/31/21)
Real Estate-I Shares 0.28% 11.07% 5.88% 41.23% 6.66%
FTSE Nareit Equity REITs Index 1.02% 18.85% 8.87% 37.78% -0.40%
Lipper Real Estate Average 0.84% 16.75% 7.74% 37.05% 2.92%
Lipper Percentile Rank 18%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Real Estate Number of Funds in Category: 246 (1 Year) Gross Expense Ratio 1.43%, Net Expense Ratio 1.00%.

Long-Short Equity Fund

One Month
(as of 5/31/21)
YTD
(as of 5/31/21)
QTD
(as of 3/31/21)
1 Year
(as of 3/31/21)
Since Inception
(as of 3/31/21)
Long-Short Equity – I Shares 3.02% 11.24% 6.97% 5.31% -3.54%
HFRX Equity Market Neutral Developed Index 0.28% 3.38% 2.52% 6.83 -1.64%
Lipper Long-Short Average 1.24% 9.47% 5.07% 28.05% 9.55%
Lipper Percentile rank 86%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Alternative Long/Short Equity Number of Funds in Category: 241 (1 Year) Gross Expense Ratio 2.03%, Net Expense Ratio 1.70%.

U.S. All Cap Index Fund

One Month
(as of 5/31/21)
YTD
(as of 5/31/21)
QTD
(as of 3/31/21)
1 Year
(as of 3/31/21)
Since Inception
(as of 3/31/21)
U.S. All Cap Index – I Shares 0.52% 13.08% 6.96% 65.32% 23.34%
Knights of Columbus U.S. All Cap Index 0.53% 13.30% 7.13% 67.02% 24.16%
Lipper Large Blend Average 0.72% 12.81% 6.87% 59.90% 19.34%
Lipper Percentile rank 22%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Core Number of Funds in Category: 660 (1 Year) 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. Lipper percentile rank is omitted for the Real Estate Fund, Long/Short Equity, and U.S. All Cap Fund given performance is not yet available.

Effective July 21, 2020, the Knights of Columbus Real Estate Fund underwent a change in its Investment Objective and a name change to reflect the new investment strategy as detailed in The Funds’ Prospectus update of July 20, 2020. The Fund was formerly known as Knights of Columbus Global Real Estate Fund. Results prior to July 20, 2020, reflect the performance of the Fund's previous strategy.

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.

HFRX Equity Market Neutral Index – benchmark for Long/Short Equity Fund HFRX Equity Market Neutral Index The HFRX Equity Market Neutral Index employs sophisticated quantitative techniques of analyzing price data to ascertain information about future price movement and relationships between securities, select securities for purchase and sale. These can include both Factor-based and Statistical Arbitrage/Trading Strategies.

Knights of Columbus U.S. All Cap Index – benchmark for U.S. All Cap Index Fund Knights of Columbus U.S. All Cap Index Adheres to the United States Conference of Catholic Bishops’ Socially Responsible Investment Guidelines. Consists of all common stocks and real estate investment trusts in the Solactive US Broad Market Index excluding companies that are determined by Institutional Shareholder.

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 164 out of 371 funds measured for the one year ranking period and ranked 187 out of 296 funds measured for the five year ranking period as of September 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 381 out of 505 funds measured for the one year ranking period and ranked 152 out of 411 funds measured for the five year ranking period as of September 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 200 out of 502 funds measured for the one year ranking period ranked and 207 out of 395 funds measured for the five year ranking period as of September 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 260 out of 574 funds measured for the one year ranking period and ranked 108 out of 449 funds measured for the five year ranking period as of September 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 196 out of 882 funds measured for the one year ranking period and ranked 359 out of 704 funds measured for the five year ranking period as of September 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 67 out of 361 funds measured for the one year ranking period and ranked 3 out of 267 funds measured for the five year ranking period as of September 30, 2020.

Lipper Real Estate Classification – peer group for Real Estate Fund
Funds invest primarily in equity securities of domestic and foreign companies engaged in the real estate industry.