Pax Large Cap Fund Commentary Q3 2019

Performance and Portfolio Update

• The Fund outperformed the S&P 500 Index^† during the third quarter of 2019. Consistent with our bottom-up investment approach and typical performance attribution, performance relative to the benchmark was driven by stock selection, which was positive in the quarter, and not by sector allocation, which was neutral in the quarter.
• The S&P 500 Index increased by 1.7% in the third quarter, building marginally on the strong gain in the first half of the year. It was another choppy quarter as the Index dropped by over -6% from peak to trough before recovering by quarter end. The period was marked by swings in macro sentiment due to 1) 50 basis points^‡ of easing by the Federal Reserve, 2) volatility in the energy market after a drone attack on Saudi Arabian refining infrastructure, and 3) the ongoing tariff skirmishes with China.
• The Fund experienced strong performance from holdings in the Communications Services, Information Technology, and Consumer Discretionary sectors during the quarter. Within Communications Services, Alphabet (parent of Google) rose 11% as revenue reaccelerated to 22% year over year compared with 19% in the prior quarter. AT&T rose nearly 15% in the quarter after it attracted activist interest about a potential restructuring, even as the company made progress toward its debt paydown goals. Within Information Technology, Apple (up 11%) and Applied Materials (up 10%) were strong performers due to solid fundamental execution of their business models in the quarter. Within Consumer Discretionary, Target (up 24%) reported a breakout quarter with strong sales and margins, demonstrating that it has the capabilities to thrive during the current retail industry shakeout.
• The worst performing sector was Financials, driven largely by Prudential (down -10%). Prudential lowered guidance due to the lower interest rate environment and higher investment spending on their Financial Wellness initiative. We reduced our position in Prudential during July, prior to the selloff that occurred after second quarter earnings were reported.
• The investment backdrop has changed a lot during the third quarter. The Federal Reserve easing is in full swing, and leading indicators are flashing caution for a potential recession over the next 1-2 years. We will continue to seek out investments that can thrive in this more difficult economic backdrop. Overall, we view the risk/reward of stocks to be roughly balanced for the rest of the year, and we continue to find attractive investment ideas across multiple sectors.
• We remain focused on bottom-up stock selection, while avoiding sectors that are rooted in the past. For example, we used the short-term volatility in the energy market to exit our remaining energy holdings, as we view these companies as being ill-prepared to adapt to the transition toward renewable sources of energy, a transition that we expect to accelerate over time. We believe our investment approach, which seamlessly integrates fundamental and ESG analysis, will serve as a “flywheel” to drive performance over time as investors focus on the opportunities and risks arising from the transition to a more sustainable economy.

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

¹The inception date for the Pax Large Cap Fund Institutional Class and the Investor Class is December 16, 2016.

As of 5/1/19 prospectus, total annual Pax Large Cap Fund operating expenses, gross of any fee waivers or reimbursements (excluding Acquired Fund fees and expenses), for Investor Class and Institutional Class shares are 0.96% and 0.70%, respectively.

Performance Attribution (as of 9/30/19) Sector: Average Active Weights (%)	Total Relative Contribution (%)

Top 10 Holdings

(as of 9/30/19)
Apple, Inc. 5.6%, Microsoft Corp. 5.2%, Amazon.com, Inc. 4.2%, Procter & Gamble Co., The 3.9%, Merck & Co., Inc. 3.3%, AT&T, Inc. 3.1%, Ingersoll-Rand PLC 3.0%, JPMorgan Chase & Co. 3.0%, Equinix, Inc. 2.8% and Alphabet, Inc., Class C 2.7%. Holdings are subject to change.

Definitions

^†The S&P 500 Stock Index is an unmanaged index of large capitalization common stocks. One cannot invest directly in any index.
^‡A basis point (bps) is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.
^ƒWeighted Average is an average in which each quantity to be averaged is assigned a weight. These weightings determine the relative importance of each quantity on the average.
^~Forward Price-Earnings Ratio or P/E FY1 ratio is a ratio for valuing a company that measures its current share price relative to its per-share earnings over the next 12 months.
^∘ Return on Equity: The amount of net income returned as a percentage of shareholders’ equity. Return on equity measures a corporations’ profitability by revealing how much profit a company generates with the money shareholders have invested.
^∞An Ex-Ante Beta is used for Funds with less than 2 years of performance history under its new mandate. The Ex-Ante Beta is calculated using a multi-factor risk model. Beta explains common variations in stock returns due to different stock sensitivities to the market relative to its underlying benchmark for the current period, not historical. A beta for a benchmark is 1.00: A beta greater than 1.00 indicates above average volatility and risk.

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.

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