Pax Balanced Fund Commentary Q1 2019

Performance and Portfolio Update

• • The Pax Balanced Fund modestly underperformed its benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index) in the first quarter.
  • Equity markets rebounded substantially in the first quarter, with S&P 500 Index returning 13.65%, its best quarterly start to a year since 1998. Part of the first quarter rally could be expected given the oversold conditions late in the fourth quarter, but the predominant impetus for the first quarter rally was the abrupt change in Federal Reserve policy that many investors interpreted as an end to their tightening bias and rising rates. Non-US developed market stocks also recovered, with the MSCI EAFE Index up 9.98%, but they significantly lagged US equities. Bonds delivered a solid return as the Bloomberg Barclays US Aggregate rose 2.94% amid the falling rate environment.
  • Performance of underlying funds within the Balanced Fund was the primary detractor to performance. The more defensive characteristics of the Pax Mid Cap Fund and Pax ESG Beta Dividend Fund that helped in the previous quarter, hurt these funds in the first quarter rally. The Balanced Fund allocation to non-US equities also detracted from performance versus the 60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index as non-US developed market equities lagged their US counterparts.
  • The Fund’s equity and fixed income allocations are closely aligned with their 60% equity/40% fixed income neutral allocations. While the valuation of the equity market is approaching levels we saw just before the fourth quarter sell off, bond yields have fallen substantially, rendering both asset classes as less attractive from a valuation standpoint. Our non-US equity allocation is also near its long-term neutral target, but modestly below peers. The Fund made its initial allocation in the Pax High Yield Bond Fund in early January.
  • The Pax Balanced Fund Institutional Class ranked in the 29th percentile in the Morningstar 50%-70% Equity peer group for the five-year period ended 3/31/19, which we believe is reflective of both its strong performance and risk management.*

*Rankings in other time periods may be lower. Comparison based on the Morningstar 50%-70% Equity peer group for the period ending 3/31/19. The Pax Balanced Fund’s Institutional Class performance for the 1-year period ranked 206 out of 758 (29th percentile), for the 3-year period ranked 305 out of 690 (45th percentile), for the 5-year period ranked 170 out of 601 (29th percentile), and for the 10-year period 287 out of 439 (67th percentile). The Pax Balanced Fund’s Investor Class performance for the 1-year period ranked 221 out of 758 (30th percentile), for the 3-year period ranked 366 out of 690 (54th percentile), for the 5-year period ranked 207 out of 601 (34th percentile), and for the 10-year period 327 out of 439 (74th percentile).

Figures include reinvested dividends, capital gains distributions and changes in principal value.

¹The inception date for the Pax Balanced Fund Institutional Class is April 2, 2007, and the Investor Class inception date is August 10, 1971. The performance information shown for Institutional Class shares includes the performance of Investor Class shares for the period prior to Institutional Class inception. Expenses have not been adjusted to reflect the expenses allocable to Institutional Class shares. If such expenses were reflected, the returns would be higher than those shown.

As of the 5/1/2018 prospectus, the Pax Balanced Fund All-In Gross expense ratio includes indirect expenses (Acquired Fund Fees and Expenses “AFFE”) of 0.61%. AFFE are fees and expenses charged by their investment companies in which the Fund invests a portion of its assets and are not direct costs paid by Fund shareholders. The All-In Gross expense ratio for Institutional Class and the Individual Investor Class shares are 0.66% and 0.91%, respectively. Pax Balanced Fund expense ratios, excluding indirect AFFE, are 0.05% and 0.30% for Institutional Class and Individual Investor Class shares, respectively. The management fee is a unified fee that includes all of the operating costs and expenses of the Fund (other than taxes, charges of governmental agencies, interest, brokerage commissions incurred in connection with portfolio transactions, distribution and/or service fees payable under a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940 and extraordinary expenses), including accounting expenses, administrator, transfer agent and custodian fees, Fund legal fees and other expenses. (For this purpose, Impax Asset Management LLC does not consider acquired fund fees and expenses to be operating costs and expenses of the Fund.)

Asset Allocation Relative Contribution (%)

Top 10 Equity Holdings

(as of 3/31/19)
Microsoft Corp. 2.3%, Amazon.com, Inc. 2.0%, Apple, Inc. 1.8%, Merck & Co., Inc. 1.3%, Ingersoll-Rand PLC 1.3%, Waste Management, Inc. 1.2%, Alphabet, Inc., Class A 1.2%, IBM 1.1%, AT&T, Inc. 1.1% and Visa, Inc., Class A 1.1%. Holdings are subject to change.

Definitions

^†Standard & Poor’s 500 Stock Index is an unmanaged index of large capitalization common stocks.
^‡The MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US and Canada. The MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. Performance for the MSCI EAFE Index is shown “net,” which includes dividend reinvestments after deduction of foreign withholding tax. One cannot invest directly in an index.

©2019 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Morningstar, Inc. is an independent investment research firm that compiles and analyzes fund, stock and general market data.

The statements and opinions expressed are those of the authors as of the date of this report. All information is historical and not indicative of future results and subject to change. This information is not a recommendation to buy or sell any security. Past performance does not guarantee future results.

PAX008539 (7/19)