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Market Insights - September 2021

Posted on September 21, 2021 in: Market Insights

Market Insights - September 2021

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

One of the greatest joys of my job is being able to focus on things that genuinely interest me. I have always been a student of history and politics and have a love of the Financial markets. The investment business is really the intersection of these three items. The events of the last few weeks have brought all three disciplines into full focus given, in my view, the United States military’s haphazard withdrawal from Afghanistan. While the markets have been focused on the Delta variant of the coronavirus and the direction of both employment and inflation, geopolitics have not been thrust center stage. Oh, I believe, this was also self-inflicted. 

I remember watching documentaries on America’s “Greatest Generation” and the service they felt compelled to give their country in a time of need. These included young men who lied about their ages so that they could enlist and help in the war effort during World War II. Without recounting all of the more recent history, the events of September 11, 2001, called for some action by the U.S. The Taliban was aiding Osama Bin Laden and President Bush felt a strong need to take the fight over to Afghanistan while the rubble settled in lower Manhattan. Personally, I was in the World Trade Center on September 10th and knew several people that were lost on that horrific day. I remember being at a client meeting in New Hampshire and one of the investment managers had a daughter in one of the towers and I will never forget Neil’s abject joy when she called to let him know she was safe. There were countless stories of loss and heroics from that day, and, I believe, we needed to eradicate this terrorist threat where it lived. In my view, it is not a case of live and let live, this is an ideology that does not want western culture to exist. With the recent occurrences, I believe the world is less safe and we will be facing terrorist threats and actions once again. And this will certainly add another level of complexity to the capital markets.

Certainly, President Bush wanted to get in and get out of Afghanistan and, in my view, Presidents Obama and Trump wanted the same exit. No one wants to see our beloved service men and women in danger. That said, leaving Americans behind, as well as Afghans that helped us, did not seem like a move from strength to me. Not to mention the amount of military equipment we left behind. We couldn’t load the weapons and night vision goggles and fly them out of the country? We couldn’t disable the helicopters and countless other vehicles we left behind? Sadly, the “Greatest Generation” is not in charge and instead, in my opinion, it is partisan politics, parsing of words, and gaining power for the sake of gaining and holding power. I hope and pray for better, and this nation is certainly capable of better. 

Meanwhile, the U.S. only saw an additional 235,000 jobs[1] added in August 2021 as concern over the Delta variant is causing a pull back on the economy. The U.S. had been progressing nicely with continued economic growth, healing in the employment market and improvement on the virus front. The U.S. is still seeing reasonable economic activity but there are now doubts given Delta and other potential variants. Some are positing that Delta is slowing and we should see a steep decline in cases, similar to the experience in the U.K. We believe the next few weeks will be important as to whether virus news improves, or this becomes a true economic headwind.

On a final note, I wanted to share some recent experience, I had discussing forward looking performance with a prospect. KoCAA recently launched an organically developed investment advisor representative (IAR) program and now have approximately 115 rigorously trained licensed Registered Investment Advisors now in the field. One of KoCAA’s new IARs was working on signing a new client. In utilizing our financial forecasting software, the IAR was exposing the prospect to our Model Portfolio strategy and our IAR was being told that other investment firms were telling the prospect that they could deliver 7-10% returns on a going forward basis. In this case, the individual wanted to retire at 62 and needed to bridge himself about 4 years in order to reach his desired level of Social Security.

We ran a Monte Carlo simulation to show him that if a significant bear market hit during this four-year period, this could inhibit his longer-term purchasing power during retirement. Further, our analysis shows that by age 90, there was a realistic chance of him running out of money. Logic dictates that we may see a market pullback, especially since the U.S. stock market has been in strong upward momentum since the onset of the Covid relief rally. I worked directly with the IAR and the prospect and told the prospect that while we certainly wanted to earn his business, I was not going to tell him something he wanted to hear since I prefer that KoCAA provide him with actionable and credible advice. 

We always strive to provide a client or a prospect with advice that we believe is in the absolute best interest of the individual or organization. We do not promote a concept of “under promise and over deliver”, rather it is our notion that, as advisors, we owe people our best thinking, even when the recommendation may be uncomfortable. I recount this story only to ask everyone to consider your financial position, future needs and the risks you are comfortable assuming to achieve your goals. I can certainly assure you, that the need for consistent 7-10% annual returns from the market to fund a retirement is not a strategy, it is pure folly and something we will always endeavor to avoid.

We continue to operate in a complicated market environment with the virus, mixed economic data, and a heightened risk of geopolitical issues. Please reach out to us if we can be if assistance.

Until next month.


 

[1] Nonfarm payroll growth in August increased by just 235,000 vs. expectations of 720,000

Core Bond Fund

  One Month
(as of 8/31/21)
YTD
(as of 8/31/21)
1 Year
(as of 6/30/21)
5 Years
(as of 6/30/21)
Since Inception
(as of 6/30/21)
Core Bond Fund-I Shares -0.19% 0.28% 2.52% 3.56% 3.47%
Bloomberg Barclays US Aggregate Bond Index -0.19% -0.69% -0.33% 3.03% 3.12%
Lipper Core Bond Fund Average 0.15% -0.27% 1.62% 3.32% 3.19%
Lipper Percentile Rank     22% 34%  

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Core Bond Funds. Number of Funds in Category: 500 (1 Year) and 416 (5 Year). Gross Expense Ratio 0.80%, Net Expense Ratio 0.50%.

Limited Duration Fund

  One Month
(as of 8/31/21)
YTD
(as of 8/31/21)
1 Year
(as of 6/30/21)
5 Years
(as of 6/30/21)
Since Inception
(as of 6/30/21)
Limited Duration Fund-I Shares 0.00% 0.35% 1.64% 2.00% 1.81%
Bloomberg Barclays Government/Credit 1-3 Year Index 0.00% 0.17% 0.44% 1.88% 1.79%
Lipper Short Investment Grade Debt Fund Average 0.01% 0.63% 2.73% 3.20% 2.04%
Lipper Percentile Rank     67% 70%  

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Short Investment Grade Debt Funds. Number of Funds in Category: 374 (1 Year) and 293 (5 Year). Gross Expense Ratio 0.80%, Net Expense Ratio 0.50%

Large Cap Growth Fund

  One Month
(as of 8/31/21)
YTD
(as of 8/31/21)
1 Year
(as of 6/30/21)
5 Years
(as of 6/30/21)
Since Inception
(as of 6/30/21)
Large Cap Growth Fund-I Shares 3.03% 16.28% 35.73% 19.53% 14.47%
Russell 1000 Growth Index 3.74% 21.08% 42.50% 23.66% 18.59%
Lipper Multi-Cap Growth Fund Average 2.97% 16.40% 43.32% 22.17% 16.63%
Lipper Percentile Rank     85% 68%  

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Growth Funds. Number of Funds in Category: 508 (1 Year) and 411 (5 Year). Gross Expense Ratio 1.00%, Net Expense Ratio 0.90%.

Large Cap Value Fund

  One Month
(as of 8/31/21)
YTD
(as of 8/31/21)
1 Year
(as of 6/30/21)
5 Years
(as of 6/30/21)
Since Inception
(as of 6/30/21)
Large Cap Value Fund-I Shares 2.23% 24.06% 44.43% 13.39% 9.65%
Russell 1000 Value Index 1.98% 20.32% 43.68% 11.87% 9.52%
Lipper Multi-Cap Value Fund Average 1.96% 21.66% 47.78% 12.34% 9.20%
Lipper Percentile Rank     58% 29%  

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Value Funds. Number of Funds in Category: 642 (1 Year) and 519 (5 Year). Gross Expense Ratio 1.03%, Net Expense Ratio 0.90%.

Small Cap Fund

  One Month
(as of 8/31/21)
YTD
(as of 8/31/21)
1 Year
(as of 6/30/21)
5 Years
(as of 6/30/21)
Since Inception
(as of 6/30/21)
Small Cap Equity Fund-I Shares 3.31% 19.33% 58.80% 13.51% 9.41%
Russell 2000 Index 2.24% 15.83% 62.03% 16.47% 11.91%
Lipper Small Cap Fund Average 1.94% 20.91% 60.78% 13.36% 9.99%
Lipper Percentile Rank     58% 47%  

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Small-Cap Core Funds. Number of Funds in Category: 859 (1 Year) and 710 (5 Year). Gross Expense Ratio 1.14%, Net Expense Ratio 1.05%.

International Equity Fund

  One Month
(as of 8/31/21)
YTD
(as of 8/31/21)
1 Year
(as of 6/30/21)
5 Years
(as of 6/30/21)
Since Inception
(as of 6/30/21)
International Equity-I Shares 1.11% 11.76% 44.87% 13.55% 8.58%
FTSE All World Ex US Index 1.98% 10.07% 36.79% 11.66% 7.30%
Lipper International Multi-Cap Fund Average 1.68% 11.54% 33.87% 9.91% 6.06%
Lipper Percentile Rank     3% 1%  

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: International Multi-Cap Core. Number of Funds in Category: 353 (1 Year) and 275 (5 Year). Gross Expense Ratio 1.33%, Net Expense Ratio 1.01%.

Real Estate Fund

  One Month
(as of 8/31/21)
YTD
(as of 8/31/21)
QTD
(as of 6/30/21)
1 Year
(as of 6/30/21)
Since Inception
(as of 6/30/21)
Real Estate-I Shares 0.42% 22.24% 9.67% 33.52% 11.41%
FTSE Nareit Equity REITs Index 1.84% 30.17% 12.02% 38.02% 6.33%
Lipper Real Estate Average 2.10% 27.53% 11.34% 35.24% 8.96%
Lipper Percentile Rank       65%  

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Real Estate Number of Funds in Category: 246 (1 Year) Gross Expense Ratio 1.34%, Net Expense Ratio 1.00%.

Long-Short Equity Fund

  One Month
(as of 8/31/21)
YTD
(as of 8/31/21)
QTD
(as of 6/30/21)
1 Year
(as of 6/30/21)
Since Inception
(as of 6/30/21)
Long-Short Equity – I Shares 1.24% 10.00% 0.84% 5.96% -2.47%
HFRX Equity Market Neutral Developed Index -0.33% 1.21% -0.05% 3.65 -1.41%
Lipper Long-Short Average 1.25% 11.12% 3.95% 21.51% 10.58%
Lipper Percentile rank       84%  

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Alternative Long/Short Equity Number of Funds in Category: 234 (1 Year) Gross Expense Ratio 2.17%, Net Expense Ratio 1.73%.

U.S. All Cap Index Fund

  One Month
(as of 8/31/21)
YTD
(as of 8/31/21)
QTD
(as of 6/30/21)
1 Year
(as of 6/30/21)
Since Inception
(as of 6/30/21)
U.S. All Cap Index – I Shares 2.91% 21.79% 8.68% 46.57% 25.89%
Knights of Columbus U.S. All Cap Index 2.94% 22.04% 8.67% 47.16% 26.60%
Lipper Multi-Cap Core Average 2.51% 19.76% 7.40% 41.56% 21.73%
Lipper Percentile rank       18%  

*Lipper Percentile Rank is based on risk-adjusted performance. Lipper Category: Multi-Cap Core Number of Funds in Category: 650 (1 Year) Gross Expense Ratio 1.46%, 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-(866) 693-1644.

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. Lipper percentile rank is omitted for the Real Estate Fund, Long/Short Equity, and U.S. All Cap Fund given performance is not yet available.

Effective July 21, 2020, the Knights of Columbus Real Estate Fund underwent a change in its Investment Objective and a name change to reflect the new investment strategy as detailed in The Funds’ Prospectus update of July 20, 2020. The Fund was formerly known as Knights of Columbus Global Real Estate Fund. Results prior to July 20, 2020, reflect the performance of the Fund's previous strategy.

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, 2022.

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.

HFRX Equity Market Neutral Index – benchmark for Long/Short Equity Fund HFRX Equity Market Neutral Index The HFRX Equity Market Neutral Index employs sophisticated quantitative techniques of analyzing price data to ascertain information about future price movement and relationships between securities, select securities for purchase and sale. These can include both Factor-based and Statistical Arbitrage/Trading Strategies.

Knights of Columbus U.S. All Cap Index – benchmark for U.S. All Cap Index Fund Knights of Columbus U.S. All Cap Index Adheres to the United States Conference of Catholic Bishops’ Socially Responsible Investment Guidelines. Consists of all common stocks and real estate investment trusts in the Solactive US Broad Market Index excluding companies that are determined by Institutional Shareholder.

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 251 out of 374 funds measured for the one year ranking period and ranked 206 out of 293 funds measured for the five year ranking period as of June 30, 2021.

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 112 out of 500 funds measured for the one year ranking period and ranked 143 out of 416 funds measured for the five year ranking period as of June 30, 2021.

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 434 out of 508 funds measured for the one year ranking period ranked and 280 out of 411 funds measured for the five year ranking period as of June 30, 2021.

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 375 out of 642 funds measured for the one year ranking period and ranked 151 out of 519 funds measured for the five year ranking period as of June 30, 2021.

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 496 out of 859 funds measured for the one year ranking period and ranked 337 out of 710 funds measured for the five year ranking period as of June 30, 2021.

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 9 out of 353 funds measured for the one year ranking period and ranked 4 out of 275 funds measured for the five year ranking period as of June 30, 2021.

Lipper Real Estate Classification – peer group for Real Estate Fund
Funds invest primarily in equity securities of domestic and foreign companies engaged in the real estate industry. The Real Estate fund ranked 161 out of 246 funds measured for the one year ranking period as of June 30, 2021.

Lipper Alternative Long/Short Equity Classification – peer group for Long/Short Equity Fund
Funds that employ portfolio strategies combining long holdings of equities with short sales of equities, equity options or equity index options. The funds may be either net long or net short, depending on the portfolio manager’s view of the market. The Long/Short fund ranked 196 out of 234 funds measured for the one year ranking period as of June 30, 2021.

Lipper Multi-Cap Core Classification – peer group for U.S. All Cap Index 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. The U.S. All Cap Index fund ranked 117 out of 650 funds measured for the one year ranking period as of June 30, 2021.

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