Market Insights


August 2019

By: Tony Minopoli, CIO of the Knights of Columbus

The July edition of ‘Market Insights’ was focused on the start of the election season and the vast number of democratic candidates vying for the nomination. It has been interesting to observe the various candidates trying to leapfrog each other to be the most progressive, with Joe Biden still in the lead as the presumptive favorite. I used to think of Joe as a moderate, however, he is merely “the” lead moderate in a sea of progressives.

When I was young and living in my parents’ house I used to watch all the Presidential debates and election evenings with my Dad (whom we are still blessed to have with us as he is approaching his 80th birthday). I remember my father telling me that people vote with their pocketbooks and a good economy could propel a President to a second term or force him to call the movers.

Well, the economy continues to keep working for President Trump and depending on the strength of the economy as we look forward to this point next year, could be the tipping point of a reelection or a new occupant of 1600 Pennsylvania Avenue. A Rasmussen Reports poll from Monday July 29th indicates that 47% approve of the president’s performance while 52% disapprove. While Democrats in Congress might crow that more people think President Trump is doing a bad job according to the poll, their approval rating is 17% according to a Gallup poll performed on July 23rd. This same poll illustrated that 76% disapprove of Congress’ performance so maybe the crowing will be kept to a minimum.

I am penning this letter on July 31st as I get ready to head to Minneapolis for a Knights of Columbus Board of Directors’ Meeting as well as our 137th Annual Convention. Although I typically write this after the close of the month to have month end statistics, I am getting it mostly completed as Joe Novak, my erstwhile editor and task master wanted to make sure this was ready to roll before I left. The Federal Reserve (“Fed”) acted as expected in July, and the Fed Funds rate was cut 25 basis points. So far so good. While the Fed could take further action, they also said that this is not the start of a cutting cycle. The stock market disagreed as there was the hope of a rate cutting cycle, resulting in a decline of 1.19% for the S&P 500 on the 31st of July. The bond market sees this as economic slowing and the 10- year Treasury closed the day at 2.02%

Over the last several days many market pundits have weighed in on whether the Fed should lower rates. Their thinking is that despite all the fiscal stimulus, the Fed has been unable to engineer higher inflation despite more recent wage gains. I continue to argue the slack in the labor market, in the form of relative weakness in labor participation, is a contributor. Despite seemingly low unemployment numbers, excess capacity exists in the form of idled workers that are not attached to the labor force. The argument has been that these folks would rejoin the labor force when they saw wage growth increase to a level where it overcame the various transfer payments they are receiving.

On the economic front, second quarter Gross Domestic Product (“GDP”) as measured by the Bureau of Economic Analysis was 2.1%1 for the quarter ended June 30, 2019 bringing year over year GDP growth to 2.3%2. Inflation remains quite tame at 1.6%3 in June for the headline Consumer Price Index and, 2.1%4 for CPI ex food and energy over the same period. The Fed is mostly focused on the Personal Consumption Expenditures(“PCE”) price index and this index stands at 1.4%5 (PCE DEFY) for the headline PCE and 1.6%6 ex food and energy, as of June 30, 2019. No matter the measure, the conclusion is the same; inflation is low.

Within the labor realm, initial jobless claims as issued by the US Department of Labor remain low at 21506,0007 as of July 26, 2019, aand continuing claims remain low by historical standards. Average hourly earnings were up 0.2% last month and this brings year-over year hourly earnings growth to 3.34%8 for July. This is near the recent high of 3.5% annual hourly earnings growth and still well above the rate of inflation. We believe this is one of the factors that has confounded the Fed because it is reasonable to expect that if wages grow faster than inflation for a period that inflation would follow suit and grow faster than wages. Given all the stimulus, it is hard to conceive that these old rules don’t apply, however, with THIS much stimulus it is really hard to figure out how this thing unwinds.

We remain constructive on the economy, although, we would like to see the China tariff issue come to some resolution and see the new trade pact with Mexico and Canada come to fruition. Election season is in full swing and tonight is the second night of the CNN Democratic Presidential Candidates Debate. I do surmise that after this round of debates that the field will narrow to something significantly less than the 20 current competitors. It will be entertaining for sure.

Until next month.



1 Bloomberg Data: Chart GDP CQOQ


2 Bloomberg Data: Chart GDP CYOY


3 Bloomberg Data: Chart CPI YOY


4 Bloomberg Data: Chart CPI XYOY


5 Bloomberg Data: Chart PCE DEFY


6 Bloomberg Data: Chart PCE CYOY


7 Bloomberg Data: Chart INJCJC


8 Bloomberg Data: Chart USHEYOY

Core Bond Fund

One Month
(as of 7/31/19)
YTD
(as of 7/31/19)
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 0.39% 7.14% 7.83% 2.86% 2.94%
Bloomberg Barclays US Aggregate Bond Index 0.22% 6.35% 7.87% 2.31% 2.68%
Lipper Core Bond Fund Average 0.26% 6.58% 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 7/31/19)
YTD
(as of 7/31/19)
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 0.00% 3.02% 4.28% 1.79% 1.58%
Bloomberg Barclays Government/Credit 1-3 Year Index -0.06% 2.65% 4.27% 1.59% 1.55%
Lipper Short Investment Grade Debt Fund Average 0.08% 3.18% 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 7/31/19)
YTD
(as of 7/31/19)
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 1.80% 22.72% 6.75% 15.15% 9.34%
Russell 1000 Growth Index 2.26% 24.23% 11.56% 18.07% 12.67%
Lipper Multi-Cap Growth Fund Average 1.64% 24.39% 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 7/31/19)
YTD
(as of 7/31/19)
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 1.62% 18.57% 5.87% 12.43% 7.34%
Russell 1000 Value Index 0.83% 17.20% 8.46% 10.19% 7.32%
Lipper Multi-Cap Value Fund Average 0.96% 16.59% 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 7/31/19)
YTD
(as of 7/31/19)
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 0.84% 20.67% -2.62% 10.70% 5.72%
Russell 2000 Index 0.58% 17.66% -3.31% 12.30% 7.16%
Lipper Small Cap Fund Average 0.72% 16.99% -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 7/31/19)
YTD
(as of 7/31/19)
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 -2.14% 9.47% -1.44% 11.73% 5.18%
FTSE All World Ex US Index -1.14% 12.42% 1.65% 9.75% 4.10%
Lipper International Multi-Cap Fund Average -1.96% 10.77% -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 28, 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.