Performance and Portfolio Update
- The Pax Core Bond Fund trailed the Bloomberg Barclays US Aggregate Index in the quarter.
- During the quarter, the Fund’s corporate bond positioning detracted from performance primarily due to an underweight to highly levered cyclical companies in the energy, travel, and gaming industries. These companies performed well throughout the latter half of the year, buoyed by Federal Reserve (Fed) stimulus, an improving economy and vaccine news.
- The Fund’s performance continues to benefit from an overweight to Asset Backed Securities (ABS) and underweight to Mortgage Backed Securities (MBS). ABS have continued to recoup underperformance from earlier in the year due to government stimulus programs that have helped keep a lid on consumer loan defaults. MBS were a poor performing area of the fixed income market in 2020. An increase in prepayments hurt MBS throughout the year as interest rates remained relatively low.
- The Fund continues to add impact holdings, which now make up more than 40% of the portfolio as of the end of December. The impact bond market continues to expand its issuance across all types of impact bonds (green, social and sustainability) and asset classes (corporates, supranationals, and sovereigns).
- Investment grade bonds had a solid year of performance, returning 7.51% as measured by the Bloomberg Barclays Aggregate Index. The positive vaccine news along with ongoing monetary and fiscal stimulus programs provided by the Fed and the US government has propelled corporate bonds to pre-pandemic levels.1 We expect the stimulus trend to continue in light of the recently passed $900 billion fiscal stimulus and guidance from both the Fed and the incoming presidential administration. Conversely, these scenarios may not be helpful for Treasury securities, which may experience poor performance in 2021 as a result of inflationary pressures. If the Bloomberg Barclays Treasury Index produces a negative calendar year return in 2021, it would be only the fifth time in the last 50 years.2
- Going forward, we are positioning the portfolio for what we believe will be continued improvement in the economy and slightly rising interest rates. Our approach is to maintain a duration-neutral portfolio and, as such, we do not try to predict interest rate movements. Currently we are positioning the portfolio to be overweight corporate bonds with the expectation that credit-sensitive areas of the fixed income market will benefit as the economy opens up. We are also slightly positioning the portfolio for a yield curve steepening to better align with the Fed’s preference for increasing inflation.
Performance(as of 12/31/20)
|1-Month||Quarter||YTD||1 Year||3 Year||5 Year||10 Year||Since Inception3|
|Pax Core Bond Fund - Investor Class||0.15||0.41||6.89||6.89||4.74||-||-||4.38|
|Pax Core Bond Fund - Institutional Class||0.17||0.48||7.16||7.16||4.99||-||-||4.64|
|Bloomberg Barclays US Aggregate Index||0.14||0.67||7.51||7.51||5.34||-||-||5.12|
|Lipper Core Bond Funds Index||0.38||1.37||8.63||8.63||5.73||-||-||5.48|
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. For most recent month-end performance information call 800.767.1729 or visit impaxam.com
Figures include reinvested dividends, capital gains distributions and changes in principal value.
3The inception date for the Pax Core Bond Fund Institutional Class and Investor Class is December 16, 2016.
As of the 5/1/20 prospectus, total annual Core Bond Fund operating expenses, gross of any fee waivers or reimbursements (excluding Acquired Fund fees and expenses), for Investor Class and Institutional Class shares are 0.71% and 0.46%, respectively.
(9/30/20 - 12/31/20)
Sector: Average Active Weights (%)
|Total Relative Contribution (%)|
XOther: ETFs (for short-term cash mgmt. purposes) and Cash & Equivalents. Past performance is no guarantee of future results. Short term performance may not be indicative of long term results.
Portfolio Characteristics(as of 12/31/20)
|Years to Maturity∼||13.52||13.58|
|30 Day SEC Yield∘|
1Source: ICE BofA US Corporate-Index Option-Adjusted Spread
2Source: Bloomberg Intelligence
Top 10 Holdings
(as of 12/31/20)
United States Treasury Note, 1.125%, 08/15/40 2.9%, United States Treasury Note, 0.375%, 11/30/25 2.0%, United States Treasury Note, 1.625%, 11/15/50 2.0%, United States Treasury Note, 0.625%, 11/30/27 1.4%, European Investment Bank, 3.25%, 1/29/24 1.2%, International Bank For Reconstruction & Development, 1.625%, 1/15/25 1.1%, United States Treasury Note, 0.375%, 7/15/27 1.1%, Kfw Bankengruppe, 3.125%, 12/15/21 0.9%, European Investment Bank, 0.25%, 9/15/23 0.9% and United States Treasury Note, 0.125%, 4/15/22 0.9%. Holdings are subject to change.
∱Effective Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
∼Years to Maturity (weighted average) is the number of years until the bond matures and/or expires.
∘30-Day SEC Yield: An annualized yield based on the most recent 30-day period.
The statements and opinions expressed are those of the author 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.