Market Insights


November 2018

By: Tony Minopoli, CIO of the Knights of Columbus

One of the many blessings bestowed on my family is my younger brother Vinny. He is a special needs person, who epitomizes unconditional love and joyousness and is truly one of the funniest people I have ever known. My wife and I were visiting my parents last week and after dinner, while we were all cleaning the kitchen, a political ad came on television for one of the myriad politicians running for office. As usual, the ad finished with the politician stating his name and the tag line, “And I approve this message”. Vinny retorted immediately, “Not me, I don’t approve this message and I’m tired of all of these messages!”

I think my brother spoke of the voter fatigue many of us felt, particularly during the latter stages of this election cycle. The consensus view of the Democrats taking the House and the Republicans keeping the Senate came to fruition. We certainly didn’t have a unique perspective that led us to a conclusion different from the consensus. With the election behind us, the focus now is what does this mean for the “market”. The stock market has recovered quite a bit of the October losses as D.C. gridlock might keep politicians from enacting any truly market swaying legislation. Also, time will need to pass to understand the character of the new Congress, once seated.

One of the most interesting facets of a job in the “market” is how everyone always refers to the “market”. For example, I have read numerous pieces in the last several months discussing the length of the credit cycle1 questioning how much longer this current cycle can persist. The reality is the “market” has no clue how long the current credit cycle has existed and, as an inanimate object, I believe the “market” has no emotion or concept as to how long the credit cycle will continue.

In our view and as a matter of practicality, this credit cycle will end because the current economic expansion will end either driven by a general increase in the level of interest rates that will cause the economy to fall through stall speed and begin a recession or more typical late cycle shenanigans will ensue where market participants shed pricing discipline and investors start putting too much money into highly speculative investments in order to generate acceptable returns.

What does this mean? Essentially, there is the risk-free rate of return offered to investors in the form of 90-day Treasury bills. For every incremental move away from the risk free asset, beginning with two-year Treasury notes, and continuing up the ladder to 5-year AA rated corporate bonds, 7-year junk bonds, large cap stocks, small cap stocks, private debt, private equity and so on, there is a corresponding risk premium investors should demand for the duration/maturity, credit quality or capital structure position risks assumed in a given investment.

Typically, late cycle markets are characterized by a lessened availability of out of favor, mispriced (read low priced) opportunities so that in order to achieve compelling returns investors may begin behaving irrationally. This irrational behavior manifests itself in a lessening of demanded risk premium on one hand or an increase in leveraged positions to enhance returns on the other.

Regular readers also know I have continually espoused that we are not market timers. Spoiler alert...I am not going to make a prediction on the end of the current cycle in this memo, or anywhere else for that matter! However, we do know that one of the potential outcomes of long cycles is the lessening of investment discipline driven by market apathy. People forget the things that could go “bump in the night” and start rationalizing why markets, or more importantly, their positions will continue to increase in value.

What’s an investor to do? If real estate is all about location, location, location, investors should use this time to assess, assess, assess. In our opinion, this is a call to consider investment policy and asset allocation. Forget timing the market because you might get out, but you need to know the seminal event that will lead you back in and have the ability and gumption to actually do that. If nothing has changed in the liquidity or risk needs of the asset pool then we believe it is best to rebalance to targets to take advantage of realizing the gains in certain investments. If, however, there has been a change in liquidity needs or an altercation in investment philosophy it may be best to “shore things up” before a correction begins.

In our view, the fear of missing out should never be part of an investor’s process and people should root for their favorite sports team not their portfolio. Being a fan can be irrational, I know this as a fan of the New York Jets, but fortunately that only hurts me emotionally! Okay, they make my blood pressure rise on occasion as well! Our point is that being rational about your financial needs, as expressed through an investment policy statement or asset allocation structure, should be professionally reassessed regularly to ensure it still fits the bill.

Before Karen and I had children, she worked for a publicly traded company and we were at a party at the home of her boss and struck up a conversation with a couple that both worked for the company. They were telling us about the new home they were building and if the company’s stock went up just a little more they could have little to no mortgage. I asked them if the money for the house was still in the market given that their house would be ready in less than six months. Not only did they say “yes” but they thought I was nuts for thinking they should be out of the market. After all, this company had been great to them. The punchline is that the company hit a problem, the stock fell and they lost the house. Lesson learned…Reassess, reassess, reassess. In full disclosure, we exercised the stock options my wife earned and she opted to stay at home when Joe was born to focus on being a mom. We’ve all been better for it.

Until next month.


1 A credit cycle describes the phases of access to credit by borrowers. Credit cycles first go through periods in which funds are relatively easy to borrow; these periods are characterized by lower interest rate, lowered lending requirements, and an increase in the amount of available credit, which stimulates a general expansion of economic activity. These periods are followed by a contraction in the availability of funds. During the contraction period of the credit cycle, interest rates climb and lending rules become more strict. Meaning that less credit is available for business loans, home loans, and other personal loans. The contraction period continues until risks are reduced for the lending institutions, at which point the cycle troughs out and then begins again with renewed credit.

Core Bond Fund

One Month
(as of 10/31/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Core Bond Fund-I Shares -0.83% -1.07% 1.80% 1.45%
Bloomberg Barclays US Aggregate Bond Index -0.79% -1.22% 1.31% 1.09%
Lipper Core Bond Fund Average -0.83% -1.23% 1.44% 1.00%
Lipper Percentile Rank 31% 27%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 520 (1 Year) and 457 (3 Year).
Gross Expense Ratio 1.04%, Net Expense Ratio 0.50%.

Limited Duration Fund

One Month
(as of 10/31/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Limited Duration Fund-I Shares 0.00% 0.37% 0.94% 0.88%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.11% 0.20% 0.73% 0.79%
Lipper Short Investment Grade Debt Fund Average -0.03% 0.64% 1.42% 1.17%
Lipper Percentile Rank 63% 72%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 340 (1 Year) and 290 (3 Year).
Gross Expense Ratio 1.01%, Net Expense Ratio 0.50%

Large Cap Growth Fund

One Month
(as of 10/31/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Large Cap Growth Fund-I Shares -9.94% 25.20% 17.13% 11.77%
Russell 1000 Growth Index -8.94% 26.30% 20.55% 14.81%
Lipper Multi-Cap Growth Fund Average -9.61% 22.92% 17.11% 11.61%
Lipper Percentile Rank 31% 50%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 526 (1 Year) and 469 (3 Year).
Gross Expense Ratio 1.34%, Net Expense Ratio 0.90%.

Large Cap Value Fund

One Month
(as of 10/31/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Large Cap Value Fund-I Shares -7.19% 12.75% 14.24% 8.81%
Russell 1000 Value Index -5.18% 9.45% 13.55% 8.14%
Lipper Multi-Cap Value Fund Average -6.64% 8.41% 7.65% 6.48%
Lipper Percentile Rank 16% 22%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 377 (1 Year) and 315 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 0.90%.

Small Cap Fund

One Month
(as of 10/31/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
Small Cap Equity Fund-I Shares -10.53% 10.32% 12.58% 8.53%
Russell 2000 Index -10.86% 15.24% 17.12% 10.81%
Lipper Small Cap Fund Average -9.95% 11.97% 14.64% 9.25%
Lipper Percentile Rank 62% 80%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 985 (1 Year) and 814 (3 Year).
Gross Expense Ratio 1.33%, Net Expense Ratio 1.05%.

International Equity Fund

One Month
(as of 10/31/18)
1 Year
(as of 9/30/18)
3 Years
(as of 9/30/18)
Since Inception
(as of 9/30/18)
International Equity-I Shares -7.97% 6.01% 13.51% 6.61%
FTSE All World Ex US Index -8.15% 2.43% 10.51% 4.76%
Lipper International Multi-Cap Fund Average -8.13% 1.14% 8.56% 3.82%
Lipper Percentile Rank 4% 1%

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 416 (1 Year) and 329 (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. 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 227 out of 362 funds measured for the one year ranking period and ranked 230 out of 321 funds measured for the three year ranking period as of September 30, 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 161 out of 522 funds measured for the one year ranking period and ranked 126 out of 461 funds measured for the three year ranking period as of September 30, 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 172 out of 554 funds measured for the one year ranking period ranked and 247 out of 492 funds measured for the three year ranking period as of September 30, 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 64 out of 403 funds measured for the one year ranking period and ranked 74 out of 331 funds measured for the three year ranking period as of September 30, 2018.

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 618 out of 993 funds measured for the one year ranking period and ranked 667 out of 833 funds measured for the three year ranking period as of September 30, 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 15 out of 401 funds measured for the one year ranking period and ranked 1 out of 344 funds measured for the three year ranking period as of September 30, 2018.