Market Insights


May 2018

By: Tony Minopoli, CIO of the Knights of Columbus

I was a little late getting started on writing my commentary this month as I just returned from a trip with my wife to celebrate our 25th wedding anniversary. Our marketing staff reminded me today that I needed to get after it so I sat down on Tuesday May 8th to pen my essay for the month.

First, from our perspective, the broad economy continues to move along well. First quarter GDP increased at an annual rate of 2.3% which equates to a 2.9% year-over-year growth rate for the economy. Inflation is starting to increase as we saw the broad CPI Index accelerate 2.5%, with the core rate now at 2.1%, year-over-year at April 30, 2018. Wage growth is accelerating, but not nearly at a level to cause any additional consternation from Fed participants.

A major headline that occurred recently was the April 2018 unemployment rate dipping below 4% for the first time since March 2000. At the same time, the U6 Underemployment Index also fell below 8% for the first time since December 2006. We continue to watch labor participation because we believe it is an indicator of confidence in the economic outlook. Recent trends of labor participation rates have hovered near the recent low of 62.3% set in September 2015. This month’s read on labor participation was 62.8%, just above the low, but well below the high of 67.3% set in January 2000.

If the people on the sidelines re-enter the labor market, the 4.4% difference between current labor participation and the peak number may add to the unemployment rate and bring the number back over 8%. What solves this? Higher wages that are viewed to be more than temporary will lead people back into the labor pool and back into the economy. With the myriad of threads in the social safety net and the continuing below trend growth rate in wages, individuals are left to decide when, if, and how they choose to rejoin the labor force.

On the theme of continuing positive economic momentum, Industrial Production increased 4.3% year-over-year and 0.5% last month. We also saw Capacity Utilization in April increase to 78.0%, a level last seen in March 2015. Durable Goods orders increased 8.6% year-over-year and 2.6% over last month at the end of April. These are just a few examples of positive economic readings and a prime reason that the Fed, in our opinion, will continue to remove stimulus from the economy.

The geopolitical situation remains unsettled. North and South Korea had a successful meeting and it appears that President Trump will be meeting with Kim Jong Un in the next several months with the most likely place being the Demilitarized Zone on the border between North and South Korea. A few reasons that have been floated for this being the site of the meeting is that Kim Jong Un doesn’t like to fly and there are general question about whether North Korea has an air worthy plane to deliver him to another site. It appears that North Korea wants to come to the table for Kim to try and assure his survival, if nothing else.

As of 1:25 PM on May 8th, it appears that President Trump has decided to withdraw the U.S from the Iranian nuclear deal. As both a candidate and President, Trump has been an outspoken critic of this accord because he feels Iran needs to be stopped, not delayed, from having a nuclear weapon. Who knows how the day will end, but stocks are up from their lows from the day and oil is currently trading about $68.70 versus the pen price of $70.73. Again, stay tuned because the markets may be volatile around the expected action of any number of countries trying to either save this accord or determine the next steps in this saga.

A final thought on the domestic outlook. I read a JP Morgan research report this morning on the economy and they cited that 86% of the S&P 500 Index’s companies reported earnings and, on average, revenues increased 8% and earnings 24%. More interestingly, 76% of companies beat estimates by an average of 7% and the tax cut is reported to have added about 7.5% to the average bottom line. On a forward looking basis, capital spending is up about 20% versus 2017, but a lot of that is coming from the technology sector. It is true that this expansion is very old in terms of its length, but expansions don’t know how long they have been occurring so, we believe, it will take either very high interest rates or inflation or an exogenous geopolitical or economic shock to bring this current part to an end.

We are anxiously watching the lead up to the midterm elections because historically the incumbent party has ceded ground. President Trump seems to be a binary figure with either support or disdain depending on one’s political predilection. However, voters often lead with their pocket book and given stronger home prices as well as a reasonably strong economy and stock market, the Republicans might be able to pull a “rabbit out of a hat”. At a minimum the wall of worry for the market doesn’t seem to be getting any shorter.

Until next month.



1U.S. Department of Labor – Bureau of Labor Statistics
2Board of Governors of the Federal Reserve Systems (US)
3J.P. Morgan Chase first-quarter earnings 2018

Core Bond Fund

One Month
(as of 4/30/18)
1 Year
(as of 3/31/18)
3 Years
(as of 3/31/18)
Since Inception
(as of 3/31/18)
Core Bond Fund-I Shares -0.71% 1.94% 1.72% 1.78%
Bloomberg Barclays US Aggregate Bond Index -0.74% 1.20% 1.20% 1.32%
Lipper Core Bond Fund Average -0.67% 1.15% 1.12% 1.21%
Lipper Percentile Rank 12% 14%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 512 (1 Year) and 444 (3 Year).
Gross Expense Ratio 1.04%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 4/30/18)
1 Year
(as of 3/31/18)
3 Years
(as of 3/31/18)
Since Inception
(as of 3/31/18)
Limited Duration Fund-I Shares -0.10% 0.64% 0.74% 0.77%
Bloomberg Barclays Government/Credit 1-3 Year Index -0.10% 0.24% 0.66% 0.72%
Lipper Short Investment Grade Debt Fund Average 0.02% 0.85% 1.03% 1.06%
Lipper Percentile Rank 57% 65%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 325 (1 Year) and 282 (3 Year).
Gross Expense Ratio 1.01%, Net Expense Ratio 0.50%.

Large Cap Growth Fund

One Month
(as of 4/30/18)
1 Year
(as of 3/31/18)
3 Years
(as of 3/31/18)
Since Inception
(as of 3/31/18)
Large Cap Growth Fund-I Shares 0.23% 19.74% 9.50% 9.08%
Russell 1000 Growth Index 0.35% 21.25% 12.90% 12.08%
Lipper Multi-Cap Growth Fund Average 0.10% 20.92% 9.92% 9.52%
Lipper Percentile Rank 58% 57%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 486 (1 Year) and 440 (3 Year).
Gross Expense Ratio 1.34%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 4/30/18)
1 Year
(as of 3/31/18)
3 Years
(as of 3/31/18)
Since Inception
(as of 3/31/18)
Large Cap Value Fund-I Shares 0.59% 11.55% 8.69% 7.91%
Russell 1000 Value Index 0.33% 6.95% 7.88% 7.16%
Lipper Multi-Cap Value Fund Average 0.59% 8.57% 7.04% 6.56%
Lipper Percentile Rank 17% 20%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 350 (1 Year) and 302 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 4/30/18)
1 Year
(as of 3/31/18)
3 Years
(as of 3/31/18)
Since Inception
(as of 3/31/18)
Small Cap Equity Fund-I Shares -0.60% 12.56% 6.25% 6.98%
Russell 2000 Index 0.86% 11.79% 8.39% 8.74%
Lipper Small Cap Fund Average 0.50% 9.31% 7.24% 7.61%
Lipper Percentile Rank 16% 72%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 991 (1 Year) and 812 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 4/30/18)
1 Year
(as of 3/31/18)
3 Years
(as of 3/31/18)
Since Inception
(as of 3/31/18)
International Equity-I Shares 1.57% 21.75% 9.21% 8.13%
FTSE All World Ex US Index 1.68% 16.77% 6.84% 6.12%
Lipper International Multi-Cap Fund Average 1.23% 15.29% 5.81% 5.24%
Lipper Percentile Rank 1% 3%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 420 (1 Year) and 330 (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.

Labor Market Conditions Index – The Labor Market Conditions Index is derived from a dynamic factor model that extracts the primary common variation from 19 labor market indicators.

Quantitative Easing – Defined as a policy strategy of seeking to reduce long-term interest rates by buying large quantities of financial assets when the overnight rate is zero.

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 192 out of 332 funds measured for the one year ranking period as of September, 30, 2017.

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 78 out of 493 funds measured for the one year ranking period as of September, 30, 2017.

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 35 out of 421 funds measured for the one year ranking period as of September, 30, 2017.

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 384 out of 532 funds measured for the one year ranking period as of September, 30, 2017.

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 69 out of 370 funds measured for the one year ranking period as of September, 30, 2017.

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 183 out of 1007 funds measured for the one year ranking period as of September, 30, 2017.

Tilt Fund: A fund developed when an institution compiles a core holding of stocks that mimic a benchmark type index such as the S&P 500 to which additional securities are added to help tilt the fund toward outperforming the market.

Smart Beta: A set of investment strategies that emphasize the use of alternative index construction rules to traditional market capitalization based indices. Emphasizes capturing investment factors or market inefficiencies in a rules-based and transparent way.