Performance and Portfolio Update

  • The Pax High Yield Bond Fund underperformed its benchmark index in the fourth quarter due primarily to an underweight to the Energy sector, which outperformed with a rebound 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 the Capital Goods, Healthcare and Media sectors.
  • The high yield market continued to recover in the fourth quarter from the COVID-induced weakness earlier in the year. The recovery was driven by improving fundamentals and further economic support from the Federal Reserve (Fed). High yield credit spreads contracted from 544 at the end of the third quarter to 389 at the end of the fourth quarter, producing a total return of 6.44% as represented by the ICE BofA US High Yield Index.x
  • The Fund’s lower beta1 portfolio and underweight to the Energy sector were the primary drivers of underperformance. Also detracting from relative performance were overweight positions in the more conservative Media and Tech sectors, along with minimal exposure to several COVID-19-impacted sectors, such as Travel and Leisure, which responded positively to the vaccine progress announced in November.
  • From a credit selection standpoint, three positive contributors included Laredo Petroleum, which benefited from higher oil prices, Fresh Market, which performed well alongside other supermarkets, and Bombardier, which made progress on asset sales. The primary detractors from performance were strong-performing fallen angels2 in the Energy sector that the Fund did not have exposure to, as well as an overweight position in Hannon Armstrong, a renewable energy finance provider, which lagged in the quarter.
  • We continue to be constructive of the high yield market based on improving fundamentals and economic stimulus support from the Fed. However, we have an eye on downside risk management given tighter than average credit spreads. With credit spreads trading in the bottom quartile of their historical ranges, we remain focused on companies with strong free cash flow generation and solid balance sheets. We favor more defensive sectors and continue to focus on companies that will benefit from the transition to a more sustainable economy.

Performance

(as of 12/31/20)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception3
High Yield Bond Fund - Investor Class1.464.797.857.856.047.625.195.53
High Yield Bond Fund - Class A1.314.797.857.856.047.625.205.54
High Yield Bond Fund - Institutional Class1.34
4.72
8.148.146.31
7.87
5.44
5.72
ICE BofA Merrill Lynch U.S. High Yield - Cash Pay - BB-B (Constrained 2%) Index1.60
5.66
6.32
6.326.228.03
6.63
-
Lipper High Yield Bond Funds Index1.99
6.44
4.81
4.81
5.14
7.44
5.93-

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 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 12/31/20)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception3
High Yield Bond Fund - Class A (Load)-3.30
0.04
3.00
3.00
4.43
6.65
4.73
5.31

3The 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 6.21% (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 4.30% (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 12/31/20)
Average Active Weights (%)
Total Relative Contribution (%)

Past performance is no guarantee of future results.

Portfolio Characteristics

(as of 12/31/20)
FundBenchmark
Effective Duration)3.483.79
Years to Maturity6.856.77
30 Day SEC Yield
Investor2.95%
Class A2.95%
Institutional3.20%

1 Beta coefficient measures an investment’s relative volatility or impact of a per-unit change in the independent variable (market) on the dependent variable (portfolio), holding all else constant.

2 A “fallen angel” is a bond that was initially given an investment-grade rating but has since been downgraded to junk bond status by one of the major rating services.


Top 10 Holdings

(as of 12/31/20)
Cco Holdings LLC, 4.750%, 3/1/30 1.2%, Avantor Funding, Inc., 4.625%, 7/15/28 0.9%, Ford Motor Co., 9.0%, 4/22/25 0.8%, Usg Corp., 4.875%, 6/1/27 0.8%, Ally Financial, Inc., 5.750%, 11/20/25 0.7%, Centene Corp., 4.625%, 12/15/29 0.7%, Cco Holdings LLC, 5.375%, 6/1/29 0.7%, Kraft Heinz Foods Co., 4.375%, 6/1/46 0.7%, Sprint Capital Corp., 8.75%, 3/15/32 0.7% and Iqvia, Inc., 5.0%, 5/15/27 0.7%. Holdings are subject to change.

Definitions

x The 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.

IMPX0054 (4/21)

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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