Market Insights


September 2020

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

As an avowed bond guy, I worry about everything. It is the nature of the bond market that generally, the best you can do is get back your principal and earn your coupon along the way.  With the stock market performing exceptionally well, up 56.5% on a price basis since the low on March 23rd  through August 30th  for the S&P 500[1], and COVID-19 concerns still lingering, among other worries, it got me thinking. So, what is causing me concern: the tightness of credit spreads, the potential for inflation and the continued technical trading within active model portfolio strategies. I will also comment at the end of this essay on the reserve currency status of the U.S. Dollar.

In March, a blend of BBB rated spreads hit a level of 272 basis points[2], meaning that an investor achieved a yield of the 10-year Treasury plus 2.72% and this equated to 3.39% at the end of March. At the end of July, that yield was 1.93% as the 10-Year Treasury yield was 0.53% for a spread of 140 basis points and by the end of August that spread was 131 basis points and a total yield of 2.02%. This means that investors are demanding less compensation for moving from the safety of Treasuries into corporate securities. At the same time, on a supply and demand basis, there is so much money still seeking the safety of bonds that the demand is causing investors to accept a lower credit spread.  This also means that if there becomes a concern about the economy or the health of companies that spreads can widen, meaning that investors demand more in yield. There  is an inverse relationship between yields and bond prices, such that when yields rise, bond prices fall.

The second concern that I raised was a nascent concern about inflation. I am not in any way forecasting the start of a rampant period of inflation. What I am saying is that we are printing or digitizing significant amounts of new debt and we are likely to see another round of stimulus in the $1 to $2 trillion range. More debt. We believe, at some point, this amount of debt means that with more debt floating around, investors may demand more yield to compensate them or yields may need to rise in order to attract enough investors to soak up the supply.  Further, prior to COVID-19 we were starting to see wage increases as underemployment and unemployment steadily declined.  As this happens, employers need to increase wages in order to attract and retain workers. As these workers make more and spend more this is inflationary.

Inflation is not the current issue, in fact, the Federal Reserve (“Fed”) is working to remain accommodative and supportive of the economy. At the same time, the Fed is remaining ever vigilant to keep the economy from slipping into deflation.  Between inflation and deflation, in my opinion, inflation is preferable because if the economy gets too hot, the playbook is known and was on display from the late Paul Volcker when he increased short rates to stratospheric levels in excess of 20% to stave off the inflation of the 1970’s. That playbook worked at that time and we would expect that it would work again if ever needed. The playbook for deflation is much harder to execute. Simply ask the Japanese about deflation as they have battled it since the 90’s.

The final item I wanted to discuss this month is the plethora of new money being managed in active model portfolios. Not unlike the trend following and algorithmic trading programs, these model portfolio strategies are often very similar. So, in that fashion, there could be significant market rotations into and out of asset classes in close time proximity and this could lead to unexpected, as well as, excess volatility. We continue to stress that the best defense is to develop your long-term plan and have your assets allocated in line with your risk tolerance and time horizon. These shorter-term price dislocations may be painful but can be defended with a well-diversified long-term strategy.

Now a word on the U.S. Dollar remaining as the world’s reserve currency as I received this question from someone very recently. The U.S. Dollar has been the reserve currency for many years after supplanting the British Pound. At this moment in history, there are very few real alternatives to the U.S. Dollar so let’s quickly review them. In our view, China cannot be the world’s reserve currency because of their lack of transparency and totalitarian leanings. The Japanese Yen does not have a deep enough bond market and the demographic and economic challenges that will be faced by Japan take them off the table. Perhaps, if Japan allowed for some level of immigration, they could bend the curve on their demographic issues, but this is unlikely, so I disregard them from further consideration. Like the Yen, the British Pound does not have a deep enough bond market to take the mantle from the U.S. The Euro has a deep bond market and a significant level of transparency and a generally trusted legal system.  These attributes could lead the Euro to be the reserve currency, save for the fact that the European Union always seems to be a few steps from coming apart at the seams, thus making it unlikely the Euro is the next lead dog in the currency race. This pretty much makes us the best house on an ugly street. I will confess that I have been thinking that many years from now there could be a cryptocurrency that could replace the dollar if it is freely transactable, bonds are issued in the currency, it is well protected with rules and norms and achieves broad general acceptance. Don’t hold your breath on this one, you will turn blue and pass out before the dollar gets replaced by a cryptocurrency as the reserve currency for the globe.

Well, we are firmly in the middle of election silly season. The Democratic National Convention basically can be summarized as Trump is an evil racist and he must be removed. The Republican National Convention touted Trump’s economic record pre COVID-19, that COVID is not his fault and Biden will only mess everything up. The attacks will get louder as the date gets closer and who knew the postal service would be to 2020 what hanging chads were in 2002!

Until next month.



1 S&P 500 - a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States.

2 Basis points - a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument

Core Bond Fund

One Month
(as of 8/31/20)
YTD
(as of 8/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Core Bond Fund-I Shares -0.19% 5.64% 6.74% 4.18% 3.65%
Bloomberg Barclays US Aggregate Bond Index -0.81% 6.85% 8.74% 4.30% 3.78%
Lipper Core Bond Fund Average -0.50% 6.75% 7.82% 3.98% 3.47%
Lipper Percentile Rank 80% 41%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 515 (1 Year) and 415 (5 Year). Gross Expense Ratio 0.84%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 8/31/20)
YTD
(as of 8/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Limited Duration Fund-I Shares 0.30% 2.57% 3.01% 1.94% 1.84%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.04% 3.11% 4.20% 2.11% 2.04%
Lipper Short Investment Grade Debt Fund Average 0.37% 2.42% 2.75% 2.04% 1.94%
Lipper Percentile Rank 50% 64%

*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 288 (5 Year). Gross Expense Ratio 0.82%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 8/31/20)
YTD
(as of 8/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Large Cap Growth Fund-I Shares 8.62% 25.57% 17.73% 11.72% 10.87%
Russell 1000 Growth Index 10.32% 30.47% 23.28% 15.89% 14.58%
Lipper Multi-Cap Growth Fund Average 7.30% 27.21% 17.46% 12.26% 11.66%
Lipper Percentile Rank 43% 52%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 545 (1 Year) and 424 (5 Year). Gross Expense Ratio 1.05%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 8/31/20)
YTD
(as of 8/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Large Cap Value Fund-I Shares 3.74% -11.11% -8.70% 4.93% 4.13%
Russell 1000 Value Index 4.13% -9.35% -8.84% 4.64% 4.09%
Lipper Multi-Cap Value Fund Average 4.20% -10.68% -10.51% 3.06% 2.67%
Lipper Percentile Rank 32% 18%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 526 (1 Year) and 403 (5 Year). Gross Expense Ratio 1.06%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 8/31/20)
YTD
(as of 8/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Small Cap Equity Fund-I Shares 5.40% -8.23% -12.54% 1.45% 2.03%
Russell 2000 Index 5.63% -5.53% -6.63% 4.29% 4.43%
Lipper Small Cap Fund Average 4.32% -11.59% -12.24% 2.01% 2.28%
Lipper Percentile Rank 52% 58%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 914 (1 Year) and 709 (5 Year). Gross Expense Ratio 1.14%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 8/31/20)
YTD
(as of 8/31/20)
1 Year
(as of 6/30/20)
5 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
International Equity-I Shares 5.31% -1.21% -6.56% 3.34% 2.87%
FTSE All World Ex US Index 4.44% -2.62% -3.99% 2.81% 2.53%
Lipper International Multi-Cap Fund Average 4.43% -4.47% -5.45% 1.26% 1.19%
Lipper Percentile Rank 68% 7%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 398 (1 Year) and 289 (5 Year). Gross Expense Ratio 1.39%, Net Expense Ratio 1.10%.

Real Estate Fund

One Month
(as of 8/31/20)
YTD
(as of 8/31/20)
QTD
(as of 6/30/20)
1 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Real Estate-I Shares 5.12% -7.88% 16.00% - -9.52%
FTSE EPRA/NAREIT Developed Index 0.78% -14.76% 10.33% - -19.39%
Lipper Real Estate Average 2.58% -16.56% 12.52% - -14.30%
Lipper Percentile Rank -

Gross Expense Ratio 1.43%, Net Expense Ratio 1.00%.

Long-Short Equity Fund

One Month
(as of 8/31/20)
YTD
(as of 8/31/20)
QTD
(as of 6/30/20)
1 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
Long-Short Equity – I Shares -1.12% -11.95% 0.22% - -9.27%
HFRX Equity Market Neutral Developed Index 0.66% -6.07% 3.02% - -5.66%
Lipper Long-Short Average 0.00% 5.80% 7.63% - 4.86%
Lipper Percentile rank -

Gross Expense Ratio 2.03%, Net Expense Ratio 1.70%.

U.S. All Cap Index Fund

One Month
(as of 8/31/20)
YTD
(as of 8/31/20)
QTD
(as of 6/30/20)
1 Years
(as of 6/30/20)
Since Inception
(as of 6/30/20)
U.S. All Cap Index – I Shares 7.76% 9.29% 22.57% - -3.63%
Knights of Columbus U.S. All Cap Index 7.71% 9.78% 23.34% - -3.23%
Lipper Large Blend Average 5.80% 5.10% 21.10% - -5.78%
Lipper Percentile rank -

Gross Expense 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.

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.

S&P 500 Index
The S&P 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. This index is a barometer of the stock market as a whole and, arguably, reflects the economy given the diversity of underlying sectors.

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 185 out of 369 funds measured for the one year ranking period and ranked 183 out of 288 funds measured for the five year ranking period as of June 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 414 out of 515 funds measured for the one year ranking period and ranked 169 out of 415 funds measured for the five year ranking period as of June 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 236 out of 545 funds measured for the one year ranking period ranked and 219 out of 424 funds measured for the five year ranking period as of June 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 170 out of 526 funds measured for the one year ranking period and ranked 72 out of 403 funds measured for the five year ranking period as of June 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 477 out of 914 funds measured for the one year ranking period and ranked 412 out of 709 funds measured for the five year ranking period as of June 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 272 out of 398 funds measured for the one year ranking period and ranked 20 out of 289 funds measured for the five year ranking period as of June 30, 2020.