Pax Sustainable Allocation Fund Commentary Q2 2021

Performance and Portfolio Update

• The Pax Sustainable Allocation Fund Institutional Class returned 5.68% in the second quarter, modestly trailing its benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index) which returned 5.84% while outperforming its peer group index, the Morningstar 50%-70% Equity Allocation, which returned 5.21%.
• The Biden Administration’s vaccination campaign and efforts to accelerate the reopening of the economy has been viewed favorably by the equity markets. The S&P 500 Index^△ rose by 8.55% in the second quarter, outperforming the solid 5.17% return of the MSCI EAFE Index^ƒ, as non-US developed market stocks lagged US stocks. Bonds lagged equities but performed well as interest rates declined and corporate spreads¹ modestly tightened in the quarter leading to a 1.83% return in the Bloomberg Barclays Aggregate Bond Index^∼.
• Relative to the Fund’s benchmark, the Fund’s overweight to equity and underweight to fixed income benefited performance. The allocation to international stocks detracted from performance as non-US stocks underperformed their US counterparts. The Pax Large Cap Fund represents the largest equity allocation and was also the largest underlying fund contributor to return as it outperformed the S&P 500 Index. The Pax Global Sustainable Infrastructure Fund, while modestly outperforming its infrastructure benchmark, detracted from the Fund’s return as the defensive nature of infrastructure offerings caused it to lag the broader equity market.
• Gross domestic product (GDP) and earnings growth are expected to continue recovering sharply during 2021, driven by pent up demand as economies open further and consumer and business confidence returns. While the Federal Reserve’s determination to let the economy “run hot” has led to longer-term concerns about inflation, we believe the current inflation impulse is transitory. Equity valuations remain stretched, but upside to bond returns may be limited by the combination of low interest rates relative to history and very tight credits spreads. In this environment, we remain vigilant in ensuring the Sustainable Allocation Fund asset allocation reflects an appropriate tolerance for risk. The Fund remains modestly overweight equity, 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 based on risk-adjusted returns in the Morningstar Allocation 50%-70% Equity category (659 peers) for the period ending June 30, 2021, which we believe is reflective of both its strong performance and risk management.² The Fund’s institutional class performance ranks in the 10th percentile (out of 659 funds) over the 3-year and 19th percentile (out of 601 funds) for 5-year period ending June 30, 2021 based on average annual returns within the Morningstar Allocation 50%-70% Equity category.³

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 (%)

¹A corporate spread is the difference in yield between a US Treasury bond and a corporate bond of the same maturity but different credit quality.

²The Morningstar Ratings™ shown are as of 6/30/2021. 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 659 funds overall, 4 stars out of 659 funds for 3-years, 4 stars out of 601 funds for 5-years, 3 stars out of 428 funds for 10-years. Pax Sustainable Allocation Fund Institutional Class (PAXIX) Morningstar ratings were 4 stars out of 659 funds overall, 5 stars out of 659 funds for 3-years, 4 stars out of 601 funds for 5-years, 3 stars out of 428 funds for 10-years.

³Rankings in other time periods may be lower. Comparison based on the Morningstar 50%-70% Equity peer group for the period ending 6/30/21. The Pax Sustainable Allocation Fund’s Institutional Class performance for the 1-year period ranked 216 out of 685 (35th percentile), for the 3-year period ranked 53 out of 659 (10th percentile), for the 5-year period ranked 102 out of 601 (19th percentile), and for the 10-year period 161 out of 428 (38th percentile). The Pax Sustainable Allocation Fund’s Investor Class performance for the 1-year period ranked 235 out of 685 (37th percentile), for the 3-year period ranked 70 out of 659 (13th percentile), for the 5-year period ranked 136 out of 601 (25th percentile), and for the 10-year period 192 out of 428 (45th percentile).

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Top 10 Equity Holdings

(as of 6/30/21)
Microsoft Corp. 2.9%, Apple, Inc. 1.6%, Amazon.com, Inc. 1.4%, United Parcel Service, Inc., Class B 1.4%, Applied Materials, Inc. 1.3%, Alphabet, Inc., Class A 1.3%, Procter & Gamble Co., The 1.2%, T-Mobile US, Inc. 1.2%, Voya Financial, Inc. 1.1% and Bristol-Myers Squibb Co. 1.1%. 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.
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.

IMPX0532 (10/21)