Market Insights


October 2018

By: Tony Minopoli, CIO of the Knights of Columbus

Last month I reviewed the historical relationship between the 10-year Treasury note and inflation with the key outcome being that 10-year Treasury notes currently offer very little premium over inflation. We are looking ahead now to consider what the Fed might be up to in December and where do we think the economy goes from here, both domestically and globally.

First, we had predicted that the Fed would increase the Fed Funds Rate three to four times this year. We are in the consensus so I do not want that call to sound like a daring contrarian prediction. The Fed has focused on their data driven analysis to guide monetary policy. By all indications, the data which indicated the September hike continues to indicate an additional December rate hike, for a Fed Funds Rate range of 2.25% to 2.50% and this will be the highest level in over 10 years. We believe that after the December meeting, the Fed’s voting members will be looking at data to determine a future path. Currently, the Bloomberg consensus shows a 76% chance of an additional rate hike in December and a 59% chance for a rate hike in March 2019.

Domestically, we continue to see many positive signs for the U.S. economy. The latest print of second quarter GDP1 showed quarterly growth of 4.2% and the annual growth rate is 2.9%. At August 31, 2018 Industrial Production2 has a current annual growth rate of 4.9% and Capacity Utilization3 stands at 78.1%, the highest level since March 2015. The orders for Durable Goods4 at August 31, 2018 are up 14.5% over last year and this illustrates a further factor of a growing economy as is the 61.8 reading for the ISM Manufacturing Index5, the highest reading in well over a year. The last economic indicator I would like to discuss is the Conference Board Leading Indicators Index6 which stands at 111.2, the highest level since 1962 (the longest period I could get on Bloomberg Terminal). This Index is also up 6.4% over last year and continues to point to robust economic activity.

On the inflation front, CPI7 slipped to 2.7% in the August release from 2.9% in both June and July. At the same time, core inflation, (ex food and energy) is currently 2.2%, down 2.4% from the July release. The Fed is feeling better that inflation is in excess of 2% and the likelihood of a debilitating bout of deflation is much less probable. Fueling this is the 3.7% unemployment rate, the lowest in over 20 years, and underemployment rate of 7.4%, the lowest level since April 2001. The relative strength of the labor market is also driving wages, with average hourly earnings up 2.8% versus this time last year and the fastest growth rate since the economy was contracting in 2009.

All is not perfect however. The synchronized global growth that was so virtuous in 2017 has been fairly uneven in 2018. Also, we have no way of knowing how individual economies are going to perform as the Fed, European Central Bank, Bank of England and Bank of Japan either continue or start the process of normalizing monetary policy. If investors and economies were indeed pumped up or propped up by low interest rates, global economies could be in for a fairly rocky road. Given the length of the current recovery, many are looking for signs to indicate that countries have reached the tipping point because, in our opinion, as assuredly as there is in a period of economic expansion, there is ultimately an economic slowdown, followed by a recession as part of the normal economic cycle. With that “Captain Obvious” moment well handled, the more difficult part is discerning a blip in an upward trend and a true turn towards recession. To be sure, this has been a shallow and uneven, if not unspectacular expansion.

We are also watching the current round of Treasury auctions because the U.S. has been able to operate with a high level of debt and deficit because the country remains the world’s reserve currency. The U.S. National Debt now totals over $21 trillion, according to the economic research data available from the Federal Reserve Bank of St. Louis. This figure was $5.8 trillion at the start of this century and I often hear that consumers have been so used to hearing this massive debt number that they are no longer sensitive to it. We believe that as long as the United States Dollar remains the global reserve currency the United States can withstand some debt. The reason we continue to watch the Treasury auctions are because if demand slips for U.S. Treasury securities, a higher level of interest may be needed to meet the demand of our country’s bond issuance.

If this scenario plays true, higher borrowing costs could impact the U.S. federal budget because a greater percentage of current tax revenue would be needed to pay interest payments; alternatively taxes would need to increase in order to service the national debt. Neither situation is good. We believe it is likely that the U.S. economy has ended the period of seriously low interest rates. However, how the U.S. economy led by the Fed transitions to higher interest rates is potentially more important than the absolute value of where the rates settle. We believe if rates drive too high, corporations may be less likely to take on additional debt to finance expansions. Further, if the U.S. economy experienced simultaneous consumer cost increases this combination will most assuredly cause our economy to slip into recession.

Currently, we are watching the U.S. midterm elections as the outcome may have a significant impact on either a continuation of the Trump agenda or a stalemate until the next Presidential election. Stay tuned, it won’t be boring!

Until next month.


1 Gross Domestic Product (“GDP”) represents the total value of all goods and services produced in a country’s borders during a specific time period.

2 Industrial production is a measure of output of the industrial sector of the economy.  The Industrial Sector included manufacturing, mining and utilities.

3 Capacity Utilization /the capacity utilization rate measurers the proportion of the possible economic output that is actually realized. 

4 Durable Goods are consumer goods that last over 3 years.

5 The ISM Manufacturing Index is based on surveys of over 300 manufacturing firms by The Institute for Supply Management.  It monitors employment, production, inventories, new orders and supplies deliveries.

6 The Conference Board Leading Economic Index is an American economic leading indicator calculated by the Conference Board using 10 key variables to forecast future economic activity. 

7 The Consumer Price Index (“CPI”) is a measure of the 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 9/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Core Bond Fund-I Shares -0.59% -1.07% 1.80% 1.45%
Bloomberg Barclays US Aggregate Bond Index -0.64% -1.22% 1.31% 1.09%
Lipper Core Bond Fund Average -0.53% -1.23% 1.44% 1.00%
Lipper Percentile Rank 31% 27%

*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 9/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Limited Duration Fund-I Shares 0.05% 0.37% 0.94% 0.88%
Bloomberg Barclays Government/Credit 1-3 Year Index -0.07% 0.20% 0.73% 0.79%
Lipper Short Investment Grade Debt Fund Average 0.05% 0.64% 1.42% 1.17%
Lipper Percentile Rank 63% 72%

*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 9/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Large Cap Growth Fund-I Shares 0.00% 25.20% 17.13% 11.77%
Russell 1000 Growth Index 0.56% 26.30% 20.55% 14.81%
Lipper Multi-Cap Growth Fund Average 0.17% 22.92% 17.11% 11.61%
Lipper Percentile Rank 31% 50%

*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 9/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Large Cap Value Fund-I Shares -1.16% 12.75% 14.24% 8.81%
Russell 1000 Value Index 0.20% 9.45% 13.55% 8.14%
Lipper Multi-Cap Value Fund Average 1.25% 8.41% 7.65% 6.48%
Lipper Percentile Rank 16% 22%

*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 9/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Small Cap Equity Fund-I Shares -3.24% 10.32% 12.58% 8.53%
Russell 2000 Index -2.41% 15.24% 17.12% 10.81%
Lipper Small Cap Fund Average -2.25% 11.97% 14.64% 9.25%
Lipper Percentile Rank 62% 80%

*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 9/30/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
International Equity-I Shares 0.44% 6.01% 13.51% 6.61%
FTSE All World Ex US Index 0.53% 2.43% 10.51% 4.76%
Lipper International Multi-Cap Fund Average 0.64% 1.14% 8.56% 3.82%
Lipper Percentile Rank 4% 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, 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 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.