Performance and Portfolio Update
- The Pax Balanced Fund modestly underperformed its benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index) in the second quarter but outpaced its peer group benchmark, the Morningstar Allocation – 50% to 70% Equity.
- Both equity and fixed income markets delivered solid returns in the second quarter. The S&P 500 Index† was up 4.3% and the Bloomberg Barclays Aggregate Index‡ nearly kept pace returning 3.08%. While these results are gratifying, there are reasons for caution as we look to the second half of the year. The second quarter return for the S&P 500 Index masks volatility along the way. After the sharp rally to begin the year, the S&P 500 Index sold off -6.4% in May before recovering 7.1% in June. This mirrors the pattern we saw in the fourth quarter of 2018 and early 2019 where investors sold off on earnings risks only to recover on indications that Federal Reserve policy was increasingly dovish.
- The Fund’s modest underweights to equity and fixed income as well as the minor transitional allocation to cash were detractors from relative performance during the quarter. The Fund’s allocation to non-US equities also hurt performance relative to the benchmark as non-US developed market equities lagged their US counterparts.
- During the quarter, the Pax Large Cap Fund outperformed the S&P 500 Index and contributed the most to the Balanced Fund performance as the largest underlying equity allocation in the Fund. Conversely, the Pax ESG Beta Dividend Fund detracted from Balanced Fund relative performance during the quarter as its focus on higher dividend yielding companies with stronger profitability profiles was not rewarded in the quarter.
- The Fund’s equity allocation was reduced in the latter half of the second quarter through the liquidation of the Pax Mid Cap Fund and remains modestly below its 60% neutral target. In connection with the Pax Mid Cap Fund liquidation, an investment was made in the Pax Small Cap Fund to maintain diversification benefits down the market capitalization spectrum. The fixed income allocation also remains modestly below its 40% target. The strong performance of both stocks and bonds has left investors contending with high equity valuations and meager fixed income yields at current interest rate levels. We are maintaining a modest 5% transitional allocation to cash that we will be prepared to deploy across US equity, non-US equity or fixed income as clarity increases on valuations, risks and prospects across these asset classes.
- 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 6/30/19, 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 6/30/19. The Pax Balanced Fund’s Institutional Class performance for the 1-year period ranked 158 out of 735 (23rd percentile), for the 3-year period ranked 254 out of 679 (39th percentile), for the 5-year period ranked 169 out of 595 (29th percentile), and for the 10-year period 246 out of 431 (56th percentile). The Pax Balanced Fund’s Investor Class performance for the 1-year period ranked 166 out of 735 (30th percentile), for the 3-year period ranked 312 out of 679 (47th percentile), for the 5-year period ranked 205 out of 595 (34th percentile), and for the 10-year period 279 out of 431 (66th percentile).
Performance(as of 6/30/19)
|Returns (%)||Average Annual Returns (%)|
|1-Month||Quarter||YTD||1 Year||3 Year||5 Year||10 Year||Since Inception1|
|Balanced Fund - Investor Class||4.55||3.73||12.36||7.36||7.95||5.72||8.43||8.26|
|Balanced Fund - Institutional Class||4.55||3.79||12.54||7.61||8.22||5.99||8.71||8.33|
|S&P 500 Index||7.05||4.30||18.54||10.42||14.19||10.71||14.7|
|60% S&P 500 Index / 40% Bloomberg Barclays US Aggregate Bond Index||4.73||3.96||13.64||9.87||9.51||7.75||10.50|
|Morningstar Allocation - 50% to 70% Equity||4.28||2.95||12.21||5.73||7.79||5.04||8.93|
Performance data quoted represent past performance, which does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance for the most recent month-end, call 800.767.1729 or visit paxstaging.wpengine.com.
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 5/1/2019 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 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 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 AllocationRelative Contribution (%)
Past performance is no guarantee of future results.
XThe Inception date of the Pax Large Cap Fund, Pax ESG Beta Dividend Fund and Pax Core Bond Fund is December 16, 2016. The Inception date of the Pax Global Opportunities Fund is June 27, 2018.
Asset Allocation (%)(as of 6/30/19)
|Pax Large Cap Fund||36.9|
|Pax ESG Beta® Dividend Fund||7.0|
|Pax Mid Cap Fund||0.2|
|Pax Small Cap Fund||1.7|
|Pax Global Opportunities Fund||1.6|
|Pax Global Environmental Markets Fund||1.3|
|Pax MSCI EAFE ESG Leaders Index Fund||8.0|
|Pax Core Bond Fund||37.1|
|Pax High Yield Bond Fund||1.1|
|Cash & Other||5.1|
Top 10 Equity Holdings
(as of 6/30/19)
Microsoft Corp. 2.6%, Apple, Inc. 2.3%, Amazon.com, Inc. 2.1%, Merck & Co., Inc. 1.4%, Procter & Gamble Co., The 1.4%, Ingersoll-Rand PLC 1.4%, Visa, Inc., Class A 1.3%, AT&T, Inc. 1.2%, JPMorgan Chase & Co. 1.2% and Alphabet, Inc., Class A 1.1%. Holdings are subject to change.
†Standard & Poor’s 500 Stock Index is an unmanaged index of large capitalization common stocks.
‡The Bloomberg Barclays US Aggregate Bond Index is a broad base index, maintained by Bloomberg L.P. often used to represent investment grade bonds being traded in United States.
One cannot invest directly in an index.
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Diversification does not eliminate the risk of experiencing investment loss.
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.