Market Insights


September 2019

By: Tony Minopoli, CIO of the Knights of Columbus

Back in July 2005, I received my offer letter to join the Knights of Columbus. Charlie Walden, my predecessor and chief recruiter, called me at home the evening the letter was sent. I distinctly remember that Karen and I were sitting on our patio having a glass of wine and toasting this new chapter in my career. I told him how excited I was to be joining the Knights and he, knowing that I am a little on the high energy side, wanted to express the notion that managing a life insurance portfolio could be a little boring in that you are mainly managing a buy and hold strategy. Boring indeed!

I root for boring! In order to keep the Supreme Knight up to date on the activities of the Investment Department, I started sending him a one page report every month; the first report began in the fall of 2006. In September 2006, we invested $153 million in our life insurance portfolio at a combined yield of 5.98% and invested $18 million in our annuity portfolio at 5.51%. At that time, the yield curve was beginning to flatten and the 10-year Treasury1 yielded 4.63% and the 5-year Treasury yielded 4.58%2 .  This compares to the current 10-year Treasury yield of 1.61%3 and the current 5-year yield of 1.50%4, as of August 22, 2019.

This walk down memory lane was not just to remind us how much higher yields were several years ago (although rates that juicy do bring tears to my eyes!). My purpose is to discuss yields in the context of political pressure, fiscal policy and the great unknown surrounding the unwinding of the unprecedented monetary policy in place since Quantitative Easing (“QE”)5 actually became a “thing”.

I have been an unabashed fan of President Trump’s trade policy with China. At the moment, while his rhetoric appears to be, softening, I believe we need China to be a full participant in the global economy. Currently, China acts solely in its best interest, having import rules with other countries that are much steeper than the export rules they enjoy with those very same countries. This is well trod ground and I won’t rant further on the topic. However, given some stock market weakness and concerns of a global recession, President Trump has been calling on the Federal Reserve (“Fed”) to cut interest rates another 100 basis points.

Folks, we may have issues, but in my view lowering rates is not the panacea. Interestingly, it seems we are talking ourselves into a recession. Yes, a big rate cut will likely be a stimulating factor for stocks, equating to a positive for the President, as he seems to believe the stock market is a daily mechanism indicating the success or failures of his economic policies. I am completely at odds with the President’s call for lower rates. Lessening interest rates will have a negligible impact on driving economic activity. At the same time, as we have seen the health of our banks improve dramatically since the depths of the Great Recession, driving down interest rates may make it more difficult for banks to remain healthy and profitable. Yes, we need healthy banks that are ready, willing and able to lend to ensure that we have an ability to continue economic growth. If the net interest margin earned by banks compresses, it could cause lending conditions to tighten resulting in the exact opposite of the economic condition the President is trying to create.

With the increased level of overall debt, and the likely $1 trillion budget deficit that is in place, the fiscal maneuvers the government can enact during an economic slowdown become more difficult because at some point the overall level of debt matters. No, we do not subscribe to Modern Monetary Theory that says debt and deficits don’t matter for sovereign nations. When someone wonders whether you can pay your debts, interest rates will tell you that debt and deficits matter.  Greece or Venezuela are recent examples. No, I am not conflating the U.S. to become as troubled as either of these two nations, but there is a point where investors will require more interest in order to lend. Although with negative interest rates still prevailing globally, maybe this is becoming less of a factor. However even at low interest rate levels, debt service usually begins to inhibit government spending. The U.S. seems to be doing the opposite of what I believe a country should do during an economic expansion, meaning improving the budget, increasing short rates, and trying to remain as balanced as possible.

Which brings me to my last point about the unwinding of QE and the current monetary policy experiment. As we think about the flat yield curve and whether it purports an impending recession, we review the current situation versus that of 2007.  The domestic economy does not have the excesses that existed in the real estate market or the leverage inherent in many of the products Wall Street was pushing back in ‘07. Today, consumer spending remains robust and real estate is seemingly stable; employment remains largely constructive, although the participation rate has not improved as much as many would have thought.  Given the manipulation of interest rates by central banks around the world, how much of the negative rate scenario and our flat yield curve can be assigned to these actions? I am confident in saying that nobody knows, but this cannot persist forever and I believe the Fed is doing the right thing in using positive economic activity in the U.S. to slowly increase short rates, to start shrinking their balance sheet, and making efforts to have the economy understand that the Fed is there in full support of the economy, but merely seeking to make its footprint smaller. 

We believe that the President needs to allow the Fed to remain independent so that this incredible economic engine can continue to grow and provide opportunity. At this point, it appears the main toggle for the next direction in the economy is the trade spat with China. Can President Trump prove to be a true deal maker or is China simply trying to play out the clock and hope for a Democratic president that may be less willing to fight with China over trade and more focused on domestic issues? Stay tuned.

Until next month.



1 Bloomberg GT10 Govt Index

2 Bloomberg GT5 Govt Index

3 Bloomberg GT10 Govt Index

4 Bloomberg GT5 Govt Index

5 Quantitative Easing is a monetary policy in which a central bank purchases government securities or other securities from the market in order to increase the money supply and encourage lending and investment.

Core Bond Fund

One Month
(as of 08/31/19)
YTD
(as of 08/31/19)
1 Year
(as of 6/30/19)
3 Years
(as of 6/30/19)
Since Inception
(as of 6/30/19)
Core Bond Fund-I Shares 2.56% 9.88% 7.83% 2.86% 2.94%
Bloomberg Barclays US Aggregate Bond Index 2.59% 9.10% 7.87% 2.31% 2.68
Lipper Core Bond Fund Average 2.32% 9.03% 7.35% 2.37% 2.47%
Lipper Percentile Rank 31% 20%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 510 (1 Year) and 446 (3 Year).
Gross Expense Ratio 0.87%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 08/31/19)
YTD
(as of 08/31/19)
1 Year
(as of 6/30/19)
3 Years
(as of 6/30/19)
Since Inception
(as of 6/30/19)
Limited Duration Fund-I Shares 0.70% 3.74% 4.28% 1.79% 1.58%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.81% 3.47% 4.27% 1.59% 1.55%
Lipper Short Investment Grade Debt Fund Average 0.60% 3.81% 4.04% 2.06% 1.76%
Lipper Percentile Rank 44% 65%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 356 (1 Year) and 312 (3 Year).
Gross Expense Ratio 0.84%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 08/31/19)
YTD
(as of 08/31/19)
1 Year
(as of 6/30/19)
3 Years
(as of 6/30/19)
Since Inception
(as of 6/30/19)
Large Cap Growth Fund-I Shares -2.54 19.60 6.75% 15.15% 9.34%
Russell 1000 Growth Index -0.77% 23.28% 11.56% 18.07% 12.67%
Lipper Multi-Cap Growth Fund Average -1.83% 22.15% 10.23% 16.83% 10.21%
Lipper Percentile Rank 73% 66%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 545 (1 Year) and 488 (3 Year).
Gross Expense Ratio 1.10%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 08/31/19)
YTD
(as of 08/31/19)
1 Year
(as of 6/30/19)
3 Years
(as of 6/30/19)
Since Inception
(as of 6/30/19)
Large Cap Value Fund-I Shares -3.92% 13.92% 5.87% 12.43% 7.34%
Russell 1000 Value Index -2.94% 13.75% 8.46% 10.19% 7.32%
Lipper Multi-Cap Value Fund Average -3.83% 12.07% 3.20% 9.76% 5.92%
Lipper Percentile Rank 27% 6%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 408 (1 Year) and 355 (3 Year).
Gross Expense Ratio 1.11%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 08/31/19)
YTD
(as of 08/31/19)
1 Year
(as of 6/30/19)
3 Years
(as of 6/30/19)
Since Inception
(as of 6/30/19)
Small Cap Equity Fund-I Shares -6.23% 13.15% -2.62% 10.70% 5.72
Russell 2000 Index -4.94% 11.85% -3.31% 12.30% 7.16%
Lipper Small Cap Fund Average -4.74% 11.39% -3.34% 9.98% 6.01%
Lipper Percentile Rank 38% 41%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 951 (1 Year) and 831 (3 Year).
Gross Expense Ratio 1.17%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 08/31/19)
YTD
(as of 08/31/19)
1 Year
(as of 6/30/19)
3 Years
(as of 6/30/19)
Since Inception
(as of 6/30/19)
International Equity-I Shares -2.46% 6.78% -1.44% 11.73% 5.18
FTSE All World Ex US Index -2.96% 9.09% 1.65% 9.75% 4.10%
Lipper International Multi-Cap Fund Average -2.10% 8.42% -0.66% 7.76% 2.84%
Lipper Percentile Rank 61% 1%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 402 (1 Year) and 349 (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 191 out of 353 funds measured for the one year ranking period and ranked 215 out of 315 funds measured for the three year ranking period as of March 31, 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 300 out of 509 funds measured for the one year ranking period and ranked 133 out of 447 funds measured for the three year ranking period as of March 31, 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 385 out of 530 funds measured for the one year ranking period ranked and 356 out of 478 funds measured for the three year ranking period as of March 31, 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 122 out of 393 funds measured for the one year ranking period and ranked 37 out of 336 funds measured for the three year ranking period as of March 31, 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 561 out of 958 funds measured for the one year ranking period and ranked 466 out of 828 funds measured for the three year ranking period as of March 31, 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 46 out of 393 funds measured for the one year ranking period and ranked 4 out of 338 funds measured for the three year ranking period as of March 31, 2019.