Market Insights


October 2019

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

I recently had the opportunity to visit with a client and they asked me about all the risks in the market, to which I responded with a question; I asked for their definition of risk in order to sufficiently opine. In this instance, risk was defined as the recent volatility in the stock market. Investors have been in either “risk on” or “risk off” mode depending on the day...or the tweet. This got me to thinking about risk in all its various forms.

In general, most investors view risk as whether they will achieve their personal or corporate financial goals. Will I have enough for retirement? Will our pension fund or endowment fund achieve a sufficient return to meet its goals? Others view risk as to whether their rate of return met or exceeded a selected market index or benchmark. In my view, these are all fair assessments of risk.

However, when one looks at risk in terms of market variability, we really need to answer a simple question. Are we concerned about volatility or loss of capital? Under its very nature, volatility is generally a transient situation where the price of a given asset is rapidly moving up or down. In this situation, most investors are concerned with the downward movement of a security’s price. As portfolio managers, our job is to determine if a security’s price is subject to an exogenous shock due to macroeconomic issues or policy changes that, with time and perspective, will normalize. While volatility is not comfortable, it is generally temporary.

In 2008, before the market completely bottomed, my retired father-in-law threw in the towel, against my pleading to the contrary, and moved to a very safe asset mix. He was invested in a broad portfolio of mutual funds that, while experiencing price volatility, had very little risk of sustaining permanent losses. However, the volatility risk was more than he could handle. I shudder to think about the entire rebound of the market he didn’t enjoy. Mercifully, he earned a defined benefit pension fund from two employers and those coupled with Social Security provide a comfortable retirement for my in-laws.

Which brings me to my point that the real risk we guard against is the permanent loss of capital. Unlike volatility, realized capital loss is permanent. That capital can no longer compound either as capital gain or serve as an income generating asset. When I first started thinking about this month’s essay, I was reviewing the S&P 500’s performance1 and we reached a record close of 3,026 on July 26th. The index set a near term low of 2,841 on August 14th and this represented a price drop of 6.1%. By the sound and fury in the financial press you would have thought it was 1987 all over again! We believe it was literally this move that caused people to start refocusing on risk. Since that time, and as of this writing, the S&P 500 has reached 2,976.74, up 4.8% and less than 50 points from the all-time high.

The “what to do next” thought is generally what comes to the forefront at this point. Since I began writing this column, I have espoused a few strong beliefs. Perhaps the most central tenet of my investment philosophy is that we should strive to get rich slowly. What I mean by this is that we should carefully think of our financial goals and have an asset allocation structure that represents our risk tolerance and our return requirements. When I was an investment consultant, I had a client once express that asset allocation represented the difference in how well you eat versus how well you sleep. Most of us are looking for amiddle ground, but this analogy does help you consider the volatility one must experience with a high equity portfolio versus the more meager returns that are more closely associated with a bond heavy portfolio. Looking at current Treasury yields does help define “paltry” as the current yield on the 10-year Treasury2 is 1.694% at today’s close. Webelieve these low rates may force total return investors to either amplify the amount of risk they take in bonds, likely through the purchase of lower quality issues, or to increase their equity holdings in search of higher returns. I think sleep will be at a premium!

We continue to look for some resolution to the China trade spat and, despite the President’s desire for the stock market to go higher, driving rates down is not going to solve an economic slowdown. Maybe the powers that be in Washington could focus on a fiscal plan and resolving regulatory issues. A 2-Year treasury yield at 1.38%3 is not going to materially change economic activity if it is 25 or 50 basis points lower. The market needs to behavelike a market as opposed to the highly “managed” (I’m being charitable) situation we find the rates market in at the present time. With these issues in mind and the Democrats in search of a truly impeachable offense, we believe the recent volatility will be with us for awhile.

Until next month.



1 Bloomberg Chart: SPX Index HP

2 Bloomberg Chart: GT10 GOVT HP

3 Bloomberg Chart: GT2 GOVT HP; October3, 2019

Core Bond Fund

One Month
(as of 09/30/19)
YTD
(as of 09/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Core Bond Fund-I Shares -0.41% 9.43% 10.43% 3.46% 3.35%
Bloomberg Barclays US Aggregate Bond Index -0.53% 8.52% 10.30% 2.92% 3.03
Lipper Core Bond Fund Average -0.50% 8.50% 9.49% 2.80% 2.81%
Lipper Percentile Rank 17% 10%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 512 (1 Year) and 451 (3 Year).
Gross Expense Ratio 0.87%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 09/30/19)
YTD
(as of 09/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Limited Duration Fund-I Shares 0.02% 3.76% 4.44% 1.95% 1.65%
Bloomberg Barclays Government/Credit 1-3 Year Index -0.05% 3.42% 4.64% 1.82% 1.62%
Lipper Short Investment Grade Debt Fund Average 0.02% 3.84% 4.26% 2.11% 1.83%
Lipper Percentile Rank 45% 58%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 364 (1 Year) and 318 (3 Year).
Gross Expense Ratio 0.84%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 09/30/19)
YTD
(as of 09/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Large Cap Growth Fund-I Shares -0.95% 18.47% -2.87% 12.75% 8.40%
Russell 1000 Growth Index 0.01% 23.30% 3.71% 16.89% 12.30%
Lipper Multi-Cap Growth Fund Average -1.21% 20.65% 1.09% 14.18% 9.33%
Lipper Percentile Rank 77% 68%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 566 (1 Year) and 506 (3 Year).
Gross Expense Ratio 1.10%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 09/30/19)
YTD
(as of 09/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Large Cap Value Fund-I Shares 4.01% 18.49% 2.01% 11.49% 7.29%
Russell 1000 Value Index 3.57% 17.81% 4.00% 9.43% 7.22%
Lipper Multi-Cap Value Fund Average 3.78% 16.23% -0.45% 8.45% 5.75%
Lipper Percentile Rank 29% 5%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 448 (1 Year) and 387 (3 Year).
Gross Expense Ratio 1.11%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 09/30/19)
YTD
(as of 09/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
Small Cap Equity Fund-I Shares 1.22% 14.53% -9.16% 6.75% 4.40%
Russell 2000 Index 2.08% 14.18% -8.89% 8.23% 6.19%
Lipper Small Cap Fund Average 3.00% 14.58% -7.36% 7.00% 5.33%
Lipper Percentile Rank 67% 56%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 953 (1 Year) and 844 (3 Year).
Gross Expense Ratio 1.17%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 09/30/19)
YTD
(as of 09/30/19)
1 Year
(as of 09/30/19)
3 Years
(as of 09/30/19)
Since Inception
(as of 09/30/19)
International Equity-I Shares 1.96% 8.87% -3.68% 7.95% 4.28
FTSE All World Ex US Index 2.67% 12.01% -0.81% 6.78% 3.52%
Lipper International Multi-Cap Fund Average 2.80% 11.47% -2.92% 5.02% 2.29%
Lipper Percentile Rank 59% 4%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 415 (1 Year) and 359 (3 Year).
Gross Expense Ratio 1.39%, 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. 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 29, 2020.

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 162 out of 364 funds measured for the one year ranking period and ranked 185 out of 315 funds measured for the three year ranking period as of September 30, 2019.

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 89 out of 512 funds measured for the one year ranking period and ranked 44 out of 451 funds measured for the three year ranking period as of September 30, 2019.

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 433 out of 566 funds measured for the one year ranking period ranked and 347 out of 508 funds measured for the three year ranking period as of September 30, 2019.

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 130 out of 448 funds measured for the one year ranking period and ranked 19 out of 387 funds measured for the three year ranking period as of September 30, 2019.

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 639 out of 953 funds measured for the one year ranking period and ranked 472 out of 844 funds measured for the three year ranking period as of September 30, 2019.

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 246 out of 415 funds measured for the one year ranking period and ranked 16 out of 359 funds measured for the three year ranking period as of September 30, 2019.