United StatesPerformance and Portfolio Update
- The Fund underperformed the Russell 2000 Index in the first quarter. Poor stock selection within the Healthcare, Materials and Consumer Discretionary sectors were key detractors to performance.
- Growth stocks outperformed value with the Russell 2000 Growth Index† return of 2.38% topping the Russell 2000 Value Index‡ by 4.94%. The Fund continues to have a value tilt and this style orientation detracted from performance.
- Healthcare was the largest detractor to performance during the period. The Fund’s holding in Natus Medical declined -11.91% on weaker than expected quarterly results and lowered guidance. While we’re never pleased with earnings misses, we remain comfortable in the longer-term fundamentals of the business.
- The Fund benefited from strong stock selection in the Real Estate and Utilities sectors. Within Real Estate, our holding in Ryman Hospitality Group increased 13.45% during the period. Ryman continues to perform well, posting strong quarterly results and delivering robust booking trends which gives us confidence in our positive outlook.
- Despite the Russell 2000 Index ending the period essentially flat (-0.08%), that return masks the largest resurgence in volatility since early 2016. In our view, the catalyst for increased market volatility was the combination of a higher than expected inflation report and the demise of a levered volatility-based ETF. While the market recovered by quarter-end, volatility remains above average as investors ponder the impact of increased trade rhetoric and tightening Federal Reserve policy. Given relatively high valuations and the length of this economic cycle, investors remain on edge about when the market may turn meaningfully lower. Against this backdrop, we continue to position the portfolio defensively with a tilt towards value and a bias for higher quality, lower risk holdings.
Performance(as of 3/31/18) | 1-Month | Quarter | YTD | 1 Year | 3 Year | 5 Year | 10 Year | Since Inception1 |
|---|---|---|---|---|---|---|---|---|
| Small Cap Fund - Individual Investor Class | 1.33 | -2.80 | -2.80 | 5.24 | 4.76 | 10.34 | 9.37 | 9.32 |
| Small Cap Fund - Class A | 1.27 | -2.87 | -2.87 | 5.19 | 4.75 | 10.33 | 9.37 | 9.31 |
| Small Cap Fund - Institutional Class | 1.32 | -2.78 | -2.78 | 5.45 | 5.03 | 10.61 | 9.65 | 9.60 |
| Russell 2000 Index | 1.29 | -0.08 | -0.08 | 11.79 | 8.39 | 11.47 | 9.84 | |
| Lipper Small-Cap Core Funds Index | 1.03 | -0.71 | -0.71 | 10.76 | 8.57 | 10.96 | 9.67 |
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 call 800.767.1729 or information visit paxworld.wpengine.com/funds/pax-small-cap-fund
Figures include reinvested dividends, capital gains distributions, and changes in principal value.
As of 5/1/17 prospectus, total annual Small Cap Fund operating expenses, gross of any fee waivers or reimbursements, for Individual Investor Class, Class A, and Institutional Class shares are 1.19%, 1.19% and 0.94%, respectively.
1The inception date for the Pax Small Cap Fund Institutional Class and Individual Investor Class is March 27, 2008. The inception date for the Class A shares is May 1, 2013.
The performance information shown for Class A represents the performance of the Individual 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 10.63% (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 5.50%.
Performance (as of 3/31/18) | 1-Month | Quarter | YTD | 1 Year | 3 Year | 5 Year | 10 Year | Since Inception1 |
|---|---|---|---|---|---|---|---|---|
| Small Cap Fund - Class A (Load) | -4.27 | -8.19 | -8.19 | -0.62 | 2.80 | 9.09 | 8.75 | 8.70 |
Performance Attribution(as of 3/31/18) 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.
Portfolio Characteristics(as of 3/31/18) | Fund | Benchmark |
|---|---|---|
| Market Cap (weighted avg.)∱ | $2,798M | $2,524M |
| Forward Price/Earnings∼ | 18.32 | 17.60 |
| ROE∘ | 7.96 | 6.10 |
| Beta∞ | 0.65 | 1.00 |
| Number of Securities | 60 | 1,982 |
Top Ten Holdings
(as of 3/31/18)
Ligand Pharmaceuticals, Inc. 3.7%, Natus Medical, Inc. 3.6%, Investors Bancorp, Inc. 3.5%, Antero Resources Corp. 3.2%, HomeTrust Bancshares, Inc. 3.1%, White Mountains Insurance Group, Ltd. 3.1%, MRC Global, Inc. 3.0%, Beacon Roofing Supply, Inc. 3.0%, Unitil Corp. 2.9% and Capitol Federal Financial, Inc. 2.8%. Holdings are subject to change.
Definitions
†Russell 2000 Growth Index is a market capitalization weighted index that measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth rates. One cannot invest directly in an index.
‡Russell 2000 Value Index is a market capitalization weighted index that measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth rates. One cannot invest directly in an index.
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 corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.
∞A historical Beta is used for Funds with greater than 2 years of performance history under the same mandate. Three year Beta is used. Beta reflects the sensitivity of a Fund’s return to fluctuations in its benchmark; 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.
PAX007859 (7/18)