Market Insights


January 2019

By: Tony Minopoli, CIO of the Knights of Columbus

Well I am glad that’s over! After a fairly straight run up, the U.S. stock market saw its first negative year in the last 10 years. Many pundits are trying to rationalize why the stock market fell in 2018. While there are numerous factors, we believe some have implications as we go forward. The bond market saw ten-year Treasury yields propel from 2.41% on 12/29/17 to a high of 3.24% on 11/8/18 to 2.69% as of 12/31/18.

The trade spat with China has certainly become a “thing” and the implications have been negative for both the U.S. and China. Although, thus far the Chinese have felt the impact more acutely than the U.S., in my opinion, we are not and will not be immune from the impact of the tariff tiff. Regular readers know that I have been largely constructive on President Trump’s attempt to level the playing field with China. The Chinese insist on access to intellectual property for technology sold into the Chinese market and then have no significant intellectual property protections. Tariffs are also fairly steep on products imported into China. Presidents Bush and Obama both attempted to treat China like an “adult” in terms of admission into the World Trade Organization and trying to negotiate real trade pacts only to have China behave like a “selfish teenager”.

The market has been hopeful for some trade resolution but it has not yet come to fruition. President Trump has tweeted several times that China was coming to the table only to be left dining alone. We are hopeful of a resolution here and it will likely be more favorable to the U.S., but this has been another brick in the wall of worry the market has been climbing,

Some strategists have cited signs of an overheating U.S. economy as a potential 2019 risk. Everything has a probability of occurring, but we think this one is low. Our main thesis is that the U.S. economy is doing well, but it is certainly not firing on all cylinders. Residential real estate has been a little weaker more recently and we believe this sector would need to be fairly hot to assist in the overheating of the entire U.S. economy. Inflation, as measured by the Consumer Price Index, has cooled slightly from 2.5% in October to 2.2% at 11/30/18 and the favored inflation benchmark of the Fed, the core PCE1, had slipped below 2%. It is true that the employment market has remained strong, but hiring has slowed and hours worked is flat to down slightly. We will look to see how Industrial Production, Capacity Utilization, Factory Orders and Durable Goods Orders perform to gauge our forward looking view on the economy.

When the world emerged from the tumult of the Great Recession we had not yet started Knights of Columbus Asset Advisors but I still had the audience of the Knights of Columbus board of Directors to keep informed. At the time, we were weighing the implications of the nascent strength of the U.S. economic recovery as being the engine to help pull the world out of the economic malaise or the caboose that could be so heavy that the U.S. would slip back. Our supposition was the U.S. was moving earlier and faster than other economies and we believed, and positioned portfolios, to take advantage of global growth.

We are now witnessing signs of weakness in China and Europe and the same question is emerging. Will the U.S. be able to continue a period of economic growth or will it be pulled into recession by a general slowing in other parts of the global economy? First, we operate on the premise that the business cycle is not dead. Manipulated maybe, inflated perhaps, but certainly not dead. On this basis, the current economic expansion should end and a recession would take place. We think that coming to a successful conclusion with China on the trade issue could benefit both companies and have a spillover benefit for the rest the world.

Further, the weakness of the stock market in the fourth quarter has made equities more attractive on the basis of valuation. This is not a prediction for stocks but it is a statement of value in that even if earnings were to stay flat, lower equity prices makes the market attractive at 14 times earnings2 versus 18 times earnings.

We are acutely watching to see if wage growth is sustainable, if commercial real estate prices stabilize, and the results we see from Industrial Production, Capacity Utilization and Durable Goods orders. These will all provide some important data on the health of the economy. Further, the index of Leading Indicators, slipped slightly in October and recovered most of the lost ground in November. The next release will be January 24th and this has been a particularly favorite economic barometer for us because the Leading Indicators Index has provided pretty clear view of economic activity in the coming six to twelve months. If we see this index start to rollover, we will become a bit more concerned.

Overall, we feel that the President should stay out of the Fed’s deliberations and to find some common ground with the incoming Democratic controlled House of Representatives. Finding a way forward with China should also bring a boost to the economy and remove one brick from the economic wall of worry. That said, the European economic issues are real and we want to see the early economic releases of 2019 for some indication on the health of the economy and whether or not the current economic environment will slip into recession or keep chugging along.

Until next month.



1 The core PCE price index is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends.


2 Forward 12 months from Birinyi Associates; updated weekly (source: Wall Street Journal)

Core Bond Fund

One Month
(as of 12/31/18)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
Core Bond Fund-I Shares 1.33% -0.72% 2.29% 1.60%
Bloomberg Barclays US Aggregate Bond Index 1.84% 0.01% 2.06% 1.45%
Lipper Core Bond Fund Average 1.38% -0.69% 1.99% 1.18%
Lipper Percentile Rank 54% 28%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 506 (1 Year) and 442 (3 Year).
Gross Expense Ratio 1.04%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 12/31/18)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
Limited Duration Fund-I Shares 0.45% 1.13% 1.31% 1.00%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.78% 1.60% 1.24% 1.05%
Lipper Short Investment Grade Debt Fund Average 0.34% 1.03% 1.67% 1.19%
Lipper Percentile Rank 46% 67%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 357 (1 Year) and 317 (3 Year).
Gross Expense Ratio 1.01%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 12/31/18)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
Large Cap Growth Fund-I Shares -9.17% -4.99% 7.40% 5.36%
Russell 1000 Growth Index -8.60% -1.51% 11.15% 8.77%
Lipper Multi-Cap Growth Fund Average -8.65% -2.95% 8.41% 5.84%
Lipper Percentile Rank 65% 64%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 543 (1 Year) and 487 (3 Year).
Gross Expense Ratio 1.34%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 12/31/18)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
Large Cap Value Fund-I Shares -10.22% -8.69% 6.52% 4.07%
Russell 1000 Value Index -9.60% -8.27% 6.95% 4.15%
Lipper Multi-Cap Value Fund Average -10.31% -11.42% 5.63% 2.62%
Lipper Percentile Rank 23% 32%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 409 (1 Year) and 345 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 12/31/18)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
Small Cap Equity Fund-I Shares -12.58% -15.61% 4.00% 1.63%
Russell 2000 Index -11.88% -11.01% 7.36% 3.79%
Lipper Small Cap Fund Average -11.51% -12.67% 5.86% 2.79%
Lipper Percentile Rank 76% 78%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 967 (1 Year) and 823 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 12/31/18)
1 Year
(as of 12/31/18)
3 Years
(as of 12/31/18)
Since Inception
(as of 12/31/18)
International Equity-I Shares -3.24% -12.43% 6.87% 2.83%
FTSE All World Ex US Index -4.48% -13.87% 4.89% 1.20%
Lipper International Multi-Cap Fund Average -5.13% -15.07% 2.48% -0.06%
Lipper Percentile Rank 15% 1%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 385 (1 Year) and 337 (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. 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 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 165 out of 357 funds measured for the one year ranking period and ranked 212 out of 317 funds measured for the three year ranking period as of December 31, 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 274 out of 506 funds measured for the one year ranking period and ranked 125 out of 442 funds measured for the three year ranking period as of December 31, 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 355 out of 543 funds measured for the one year ranking period ranked and 314 out of 487 funds measured for the three year ranking period as of December 31, 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 95 out of 409 funds measured for the one year ranking period and ranked 111 out of 345 funds measured for the three year ranking period as of December 31, 2018.

Lipper Small-Cap Core Classification – benchmark for Small Cap Fund
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 734 out of 967 funds measured for the one year ranking period and ranked 641 out of 823 funds measured for the three year ranking period as of December 31, 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 56 out of 385 funds measured for the one year ranking period and ranked 1 out of 337 funds measured for the three year ranking period as of December 31, 2018.