Pax Sustainable Allocation Fund Commentary Q1 2022

Performance

• The Pax Sustainable Allocation Fund returned -6.2% in the first quarter, underperforming its blended benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index) which returned -5.1% and its peer group index, the Morningstar 50%-70% Equity Allocation, which returned -4.6%.
• The Fund lagged its blended benchmark largely due to the fossil fuel free approach incorporated across all the Fund’s underlying holdings. All Pax World Funds are fossil fuel free and avoid investing in traditional energy companies. The Energy sector produced oversized returns relative to all other sectors during the first quarter, as the rise in oil prices was exacerbated by Russia’s invasion of Ukraine.

Market Review

• Equity markets delivered negative returns in the first quarter amid a difficult macroeconomic environment. Concerns over slower economic growth, inflation, Federal Reserve (Fed) interest rate hikes and Russia’s invasion of Ukraine all contributed to negative equity market returns. The S&P 500 Index (SPX)^△ was down -4.6% but held up better than non-US equities as the MSCI EAFE Index^ƒ was down -5.9%.
• It was an even more difficult quarter for the bond market as the Bloomberg Barclays US Aggregate Bond Index (Agg)^∼ delivered its largest quarterly loss since 1980 and was down -5.93%. This challenging market environment was fueled by the specter of rising rates as the Fed began to raise rates for the first time since 2018. This monetary policy news and lower economic growth projections resulted in a flattening yield curve, as short-term yields surged while long-term yields climbed to a lesser extent due to concerns around higher inflation and lower economic growth.

Detractors

• The Energy sector produced double digit returns during a period when overall market returns were negative, and not holding traditional Energy sector companies due to our fossil fuel free approach was a detractor across all underlying funds.
• While not owning Energy was a significant headwind, underlying fund performance struggled broadly, with the Pax Large Cap Fund, the Fund’s largest equity holding, contributing the most to underperformance.

Contributors

• Although the Pax Global Sustainable Infrastructure Fund (GSIF) underperformed its infrastructure benchmark, GSIF’s more defensive characteristics, helped to mitigate some of the losses within the Sustainable Allocation Fund’s equity allocations and provided a small positive contribution to overall performance.
• The Fund’s cash allocation was a modest contributor in a quarter where both equity and bond markets were negative.

Outlook

• We believe the avoidance of traditional energy stocks that rely on fossil fuels will better position our investment portfolios over the long-term, as we transition to a lower carbon economy, but acknowledge, that the surge in oil prices this quarter was a notable headwind for all our underlying funds.
• As we look out to the balance of 2022, we believe that equity markets have many challenges ahead. The Fed’s signaling of a faster than expected normalization of interest rates to combat inflationary pressures, along with a geopolitical backdrop that is difficult to analyze and quite fluid, provide challenges above and beyond those investors typically encounter. With the bounce in equity markets in March, equity valuations look stretched while bond yields have increased, reducing the risk premium to equities. In response to the uncertainty in the markets and the reduced risk premium, shortly after the reporting period, the investment managers concurrently reduced the Fund’s equity allocation and increased the Fund’s allocation to fixed income modestly, leaving the Fund slightly above its 60% neutral equity target, with an underweight to fixed income and a modest allocation to cash.
• The Pax Sustainable Allocation Fund Institutional Class maintained its 4-star Overall Morningstar Rating for the period ending March 31, 2022, which we believe is reflective of the Fund’s enduring risk-adjusted returns in the Morningstar Allocation 50%-70% Equity category (660 peers). The Fund’s institutional share class received a 5-star Morningstar Rating for the 3-year period ending March 31, 2022, in the Morningstar Allocation 50%-70% Equity category (660 peers)¹. The Fund’s institutional share class ranks in the 13th percentile (out of 660 funds) for the 3-year period and in the 20th percentile (out of 603 funds) for the 5-year period ending March 31, 2022, in the Morningstar Allocation 50%-70% Equity category².

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.

³The inception date for the Pax Sustainable Allocation Fund Institutional Class is April 2, 2007, and the Investor Class inception date is August 10, 1971. The performance information shown for Institutional Class shares includes the performance of Investor Class shares for the period prior to Institutional Class inception. 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.

Asset Allocation Relative Contribution (%)

Past performance is no guarantee of future results.

¹The Morningstar Ratings™ shown are as of 3/31/2022. The Morningstar Rating for funds, or ‘star rating’, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five- and ten- year (if applicable) Morningstar Rating metrics. The weights are 100% three-year rating for 36-59 months of total returns, 60% five-year rating, 40% three-year rating for 60-119 months of total returns, and 50% ten-year rating, 30% five-year rating, 20% three-year rating for 120 or more months of total returns. While the ten-year overall rating formula seems to give the most weight to the ten-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

Pax Sustainable Allocation Fund Investor Class (PAXWX) Morningstar ratings were 4 stars out of 660 funds overall, 4 stars out of 660 funds for 3-years, 4 stars out of 603 funds for 5-years, 3 stars out of 435 funds for 10-years. Pax Sustainable Allocation Fund Institutional Class (PAXIX) Morningstar ratings were 4 stars out of 660 funds overall, 5 stars out of 660 funds for 3-years, 4 stars out of 603 funds for 5-years, 4 stars out of 435 funds for 10-years.

²Data shown represent rankings for the Pax Sustainable Allocation Fund in the Morningstar Equity Allocation category based on the Fund’s total return. Morningstar percentile rank is a standardized way of ranking items within a peer group, in this case, funds with the same Morningstar Category. The observation with the largest numerical value is ranked one; the observation with the smallest numerical value is ranked 100. The remaining observations are placed equal distance from one another on the rating scale. Note that lower percentile ranks are generally more favorable for returns (high returns), while higher percentile ranks are generally more favorable for risk measures (low risk).

The Pax Sustainable Allocation Fund’s Institutional Class performance for the 1-year period ranked 342 out of 705 50th percentile), for the 3-year period ranked 74 out of 660 (13th percentile), for the 5-year period ranked 94 out of 603 (20th percentile), and for the 10-year period 147 out of 435 (34th percentile). The Pax Sustainable Allocation Fund’s Investor Class performance for the 1-year period ranked 53 out of 705 (53rd percentile), for the 3-year period ranked 97 out of 660 (17th percentile), for the 5-year period ranked 122 out of 603 (23rd percentile), and for the 10-year period 171 out of 435 (41st percentile).

© 2022 Morningstar. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Top 10 Equity Holdings

(as of 3/31/22)
Microsoft Corp. 3.1%, Apple, Inc. 2.1%, Alphabet, Inc., Class A 1.6%, Amazon.com, Inc. 1.4%, Procter & Gamble Co., The 1.3%, T-Mobile US, Inc. 1.2%, Alphabet, Inc., Class C 1.1%, CVS Health Corp. 1.1%, Bristol-Myers Squibb Co. 1.1% and Trane Technologies PLC 1.0%. Holdings are subject to change.

Definitions

^△The S&P 500 Index is an unmanaged index of large capitalization common stocks.
^ƒThe MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US and Canada. The MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. Performance for the MSCI EAFE Index is shown “net”, which includes dividend reinvestments after deduction of foreign withholding tax.
^∼The Bloomberg Barclays US Aggregate Bond Index is a broad base index, maintained by Bloomberg L.P. often used to represent investment grade bonds being traded in United States.
^†The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
One cannot invest directly in an index.

CFA® is a trademark owned by the CFA Institute.

Diversification does not eliminate the risk of experiencing investment loss.

The statements and opinions expressed are those of the authors 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.

IMPX1053 (7/22)