Pax Sustainable Allocation Fund Commentary Q2 2022

Performance

• The Pax Sustainable Allocation Fund returned -10.75% for the second quarter. Over this period, when both equity and fixed income markets were significantly negative, the Fund outperformed its benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index) which returned -11.63%. The Fund performed in-line with its peer group index, the Morningstar 50%-70% Equity Allocation, which returned -10.58%.

Market Review

• Volatility has remained high in both the equity and bond markets, as persistently high inflation, rising interest rates and supply chain disruptions caused one of the worst quarterly equity returns of the past 30 years. The S&P 500 Index (SPX)^△ was down 16.10%, slightly more than international equities, which were down 14.51%, as measured by EAFE Index^ƒ. Investors globally contemplated the Federal Reserve’s tightening program, and the ability of firms to navigate inflationary and supply chain complexities against a less certain growth environment. While bonds outperformed equities, the Bloomberg Barclays US Aggregate Bond Index (Agg)^∼ declined 4.7%.

Contributors

• Relative to the Fund’s benchmark, the Pax Large Cap Fund, which represents the core allocation to US Equities, was the biggest contributor, as stock selection drove its outperformance relative to the S&P500.
• The cash allocation was a positive contributor in a quarter where both equity and bond markets were significantly negative.
• While underperforming its infrastructure benchmark, the Pax Global Sustainable Infrastructure Fund’s defensive characteristics helped mitigate some of the losses within the Sustainable Allocation Fund’s equity allocation, contributing a modest increment to the performance relative to the Fund’s benchmark.

Detractors

• The Fund’s underweight to bonds in an environment where bonds outperformed equities, detracted from performance relative to the Fund’s benchmark.
• The Fund’s allocation to high yield bonds detracted this quarter as they underperformed investment grade bonds as credit spreads widened.

Outlook

• Equity markets face many challenges over the short-to-medium-term.  Recession risk has been increasing as interest rate hikes and inflation are expected to slow economic growth over the next few quarters.  Given this backdrop, the portfolio is somewhat cautiously positioned.  Within the equity portfolios, the investment teams are looking to identify stocks with compelling long-term growth expectations that have become more attractively valued in this drawdown and remain focused on sustainability “megatrends” that have the potential to shape the investment landscape for decades to come.
• Given the uncertainty in the markets and the reduced risk premium to equities in April, we lowered the equity allocation in early April and increased our allocation to fixed income in both April and May. At quarter end, the Fund was slightly below its 60% neutral equity target, with a modest (but decreased) underweight to fixed income and a small allocation to cash.
• The Pax Sustainable Allocation Fund Institutional Class continued to maintain its 4-star Overall Morningstar Rating for the period ending June 30, 2022¹, which we believe is reflective of the Fund’s enduring risk-adjusted returns in the Morningstar Allocation 50%-70% Equity category (709 peers)².

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 6/30/2022. 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 709 funds overall, 4 stars out of 709 funds for 3-years, 4 stars out of 645 funds for 5-years, 4 stars out of 476 funds for 10-years. Pax Sustainable Allocation Fund Institutional Class (PAXIX) Morningstar ratings were 4 stars out of 709 funds overall, 4 stars out of 709 funds for 3-years, 4 stars out of 645 funds for 5-years, 4 stars out of 476 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 341 out of 755 50th percentile), for the 3-year period ranked 77 out of 709 (15th percentile), for the 5-year period ranked 95 out of 645 (19th percentile), and for the 10-year period 118 out of 476 (26th percentile). The Pax Sustainable Allocation Fund’s Investor Class performance for the 1-year period ranked 367 out of 755 (54th percentile), for the 3-year period ranked 92 out of 709 (18th percentile), for the 5-year period ranked 129 out of 645 (23rd percentile), and for the 10-year period 155 out of 476 (32nd 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 6/30/22)
Microsoft Corp. 2.9%, Apple, Inc. 2.1%, Alphabet, Inc., Class A 1.4%, Merck & Co., Inc. 1.4%, T-Mobile US, Inc. 1.1%, CVS Health Corp. 1.1%, salesforce.com, Inc. 1.1%, Alphabet, Inc., Class C 1.0%, Trane Technologies PLC 1.0% and IQVIA Holdings, Inc. 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.

IMPX1159 (10/22)