Performance and Portfolio Update

  • The Pax High Yield Bond Fund modestly underperformed its benchmark index in the first quarter, primarily due to an underweight in the Energy sector, which outperformed with the increase in oil prices. The Fund’s more conservative positioning was also a headwind during a period of outperformance in low-quality credits. This was partially offset by strong credit selection in a number of sectors including Basic Industry, Consumer Goods, Capital Goods and Leisure.
  • The high yield market continued to perform well in the first quarter, driven by improving economic data and fundamentals. High yield credit spreads contracted from 386 at the end of the year to 336 at the end of the first quarter, producing a total return of 0.90% as represented by the ICE BofA US High Yield Index.x The lower quality tiers of the asset class outperformed and absorbed the majority of the rising interest rate movement during the period due to the improving economic outlook. In contrast, the higher quality BB rated tier of the asset class, which is a more interest rate sensitive area of the market, lagged, with negative returns of -0.21%.
  • The primary drivers of underperformance during the quarter were the Fund’s underweight to the Energy and Leisure sectors, as well as more conservative positioning within the Healthcare and Media sectors.
  • Conversely, positive credit selection was led by Michaels Stores, RLJ Lodging, and Land O’Lakes. All three companies reported solid fourth quarter results.
  • We believe the high yield market is likely to benefit in the near term from economic stimulus, improving credit fundamentals, lower defaults and a strong technical market for income-producing securities. With credit spreads trading near the low end of historical ranges, we are carefully monitoring a number of economic indicators and have positioned the portfolio conservatively. We continue to focus on companies that will benefit from the transition to a more sustainable economy, including those in the Technology, Healthcare, Telecommunications and Services sectors.
  • During the quarter, the Fund divested from fossil fuels. The decision to limit exposure to fossil fuels reflects our concern about the high yield energy sector’s challenging future fundamentals and poor return prospects, as well as our explicit alignment with the transition to a more sustainable economy. By reducing exposure to fossil fuel companies, we aim to build a more resilient portfolio for our investors, to mitigate climate-related risks and accelerate the low carbon energy transition. We recognize there may be short-term periods of underperformance if the Energy sector does well, as it did during the first quarter; however, we believe this will also be accompanied by periods of outperformance when Energy lags. In aggregate, we believe that avoiding the Energy sector in the high yield asset class will result in higher returns and lower volatility over medium- and long-term horizons. You can learn more about our definition of fossil fuel free here.

Performance

(as of 3/31/21)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Investor Class0.04-0.08-0.0819.026.357.574.825.46
High Yield Bond Fund - Class A0.04-0.07-0.0719.006.357.574.835.47
High Yield Bond Fund - Institutional Class0.06
-0.02
-0.0219.196.57
7.81
5.08
5.65
ICE BofA Merrill Lynch U.S. High Yield - Cash Pay - BB-B (Constrained 2%) Index0.03
0.28
0.2820.976.727.42
6.28
-
Lipper High Yield Bond Funds Index0.39
1.47
1.47
24.075.95
7.30
5.68-

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 impaxam.com

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

As of 5/1/20 prospectus, total annual High Yield Bond Fund operating expenses, gross of any fee waivers or reimbursements (excluding Acquired Fund fees and expenses), for Investor Class, Class A and Institutional Class shares are 0.96%, 0.96% and 0.71%, respectively.

Performance
after sales charge

(as of 3/31/21)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Class A (Load)-4.51
-4.58
-4.58
13.58
4.75
6.58
4.35
5.24

1The inception date for the Pax High Yield Bond Fund Institutional Class is June 1, 2004, the Investor Class inception date is October 8, 1999, and the Class A shares inception date is May 1, 2013.

The performance information shown for Institutional Class shares represents the performance of the Investor Class shares for the period prior to Institutional Class inception date (June 1, 2004). 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. Institutional Class shares’ average annual return since June 1, 2004 is 6.12% (annualized).

The performance information shown for Class A represents the performance of the Investor Class shares for the period prior to Class A inception. Expenses have not been adjusted to reflect the expenses allocable to Class A shares. Class A inception date return since May 1, 2013 is 4.15% (annualized). A 1.00% CDSC (contingent deferred sales charge) may be charged on any shares sold within 18 months of purchase over $1 million. POP (public offering price) reflects the maximum sales load for the Fund’s Class A Shares of 4.50%.

Performance Attribution


(as of 3/31/21)
Average Active Weights (%)
Total Relative Contribution (%)

Past performance is no guarantee of future results.

Portfolio Characteristics

(as of 3/31/21)
FundBenchmark
Effective Duration)3.994.21
Years to Maturity6.796.77
30 Day SEC Yield
Investor3.20%
Class A3.21%
Institutional3.45%

Top 10 Holdings

(as of 3/31/21)
Avantor Funding, Inc., 4.625%, 7/15/28 1.2%, Kraft Heinz Foods Co., 4.375%, 6/1/46 1.0%, Standard Industries, Inc., 5.0%, 2/15/27 1.0%, Cco Holdings LLC, 4.750%, 3/1/30 1.0%, Iqvia, Inc., 5.0%, 5/15/27 0.8%, Univar Solutions, Inc., 5.125%, 12/1/27 0.8%, Hat Holdings I LLC, 5.250%, 7/15/24 0.8%, Seg Holding LLC, 5.625%, 10/15/28 0.7%, Ford Motor Co., 9.0%, 4/22/25 0.7% and Sprint Corp., 7.125%, 6/15/24 0.7%. Holdings are subject to change.

Definitions

xThe ICE BofA Merrill Lynch High Yield Index tracks the performance of below investment grade, but not in default, US dollar denominated corporate bonds publicly issued in the US domestic market, and includes issues with a credit rating of BBB or below, as rated by Moody’s and S&P. One cannot invest directly in an index.

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.

IMPX0323 (7/21)

Peter Schwab, CFA®

Senior Vice President, Portfolio Manager

Peter Schwab is Senior Vice President at Impax Asset Management LLC, the North American division of Impax Asset Management Group and investment adviser to Pax World Funds.

He is Portfolio Manager of the High Yield Bond Strategy, which includes the Pax High Yield Bond Fund. Peter is also a member of the Pax Sustainable Allocation Fund portfolio management team.

Prior to joining the firm in 2015, Peter was a Managing Director on the High Yield Bond and Loan Team at Goldman Sachs Asset Management. Prior to that he was an Investment Associate in the High Yield Group at Putnam Investments and a member of the High Yield Research Group at Donaldson, Lufkin and Jenrette.

Peter has a Bachelor of Arts in history and economics from Union College and an MBA in finance from Columbia Business School. He is a CFA® charterholder, a member of the New York Society of Security Analysts and holds the FINRA Series 7 and 63 registrations.

Peter Schwab is a registered representative of Foreside Financial Services, LLC.

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