Effective December 18, 2019, the name of the Pax Balanced Fund changed to the Pax Sustainable Allocation Fund.
Performance and Portfolio Update
- The Pax Sustainable Allocation Fund returned 5.95% in the third quarter, outperforming its benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index∼) which returned 5.64%, as well as its its peer group index, the Morningstar 50%-70% Equity Allocation, which returned 4.97%.
- Equity markets continued to soar for most of the third quarter before taking a respite for a few weeks in September. Nevertheless, the S&P 500 Index△ rallied near the end of September to cap off a second consecutive quarter of strong returns. For the quarter, the S&P 500 Index was up 8.9% and significantly outpaced the Russell 2000 Index’s return of 4.9%. Non-US equities, as represented by the MSCI EAFE Indexƒ, delivered a solid 4.8% return, but once again lagged US equities. Investment grade bonds delivered a modest return in the current low interest rate environment with the Bloomberg Barclays US Aggregate Bond Index up 0.62%.
- The Pax Large Cap Fund, which represents the largest equity allocation, was a strong contributor to the Fund’s performance, outperforming the S&P 500 Index by 1.80% during the quarter. The Fund also benefited from an underweight to fixed income since bonds lagged stocks in the quarter. No weight in the traditional Energy sector across all equity portfolios also helped relative results.
- The Pax Small Cap Fund detracted from performance as small-cap stocks lagged large-cap stocks. Additionally, the Small Cap Fund underperformed the Russell 2000 Index, its higher quality bias suffering in a market environment driven by lower quality stocks.
- Equity market valuations have risen to near all-time highs, at least on an absolute basis, as investors appear willing to assume a return to normalized earnings in 2022. However, with historically low interest rates, the relative valuation of equities to bonds does not appear as expensive. A key question remains: if we are in an extended period of low interest rates — as current Federal Reserve (Fed) policy would imply — will investors be more tolerant of high equity valuations? In such an environment, equities will remain susceptible to significant volatility as particular risks come into focus. Among those risks are market reactions to the election outcome, continued impacts of COVID-19, trade tensions and an underachieving economic recovery.
- With equity valuations stretched and bonds having limited return prospects as interest rates remain near historic lows, we remain vigilant in ensuring the Sustainable Allocation Fund asset allocation reflects an appropriate tolerance for risk. In such an environment, we are managing the equity allocation near its 60% neutral weight, with a modest 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 (638 peers) for the period ending September 30, 2020, which we believe is reflective of both its strong performance and risk management.1 The Fund’s institutional class performance ranks in the 14th percentile (out of 638 funds) over the 3-year and 17th percentile (out of 581 funds) for 5-year period ending September 30, 2020 based on average annual returns within the Morningstar Allocation 50%-70% Equity category.2 In addition, the Fund has received a 5-Globe Morningstar Sustainability Rating™, which is reflective of the Fund’s strong sustainability profile relative to peers.3
Performance(as of 9/30/20)
|1-Month||Quarter||YTD||1 Year||3 Year||5 Year||10 Year||Since Inception4|
|Pax Sustainable Allocation Fund - Investor Class||-1.64||5.88||6.70||12.48||8.66||9.07||8.18||8.34|
|Pax Sustainable Allocation Fund - Institutional Class||-1.61||5.95||6.88||12.76||8.94||9.34||8.45||8.42|
|S&P 500 Index||-3.80||8.93||5.57||15.15||12.28||14.15||13.74|
|60% S&P 500 Index / 40% Bloomberg Barclays US Aggregate Bond Index||-2.30||5.64||6.68||12.50||9.84||10.37||9.85|
|Morningstar Allocation--50% to 70% Equity||-2.14||4.97||1.30||6.28||5.71||7.45||7.53|
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.
4The Inception date of the Pax Global Opportunities Fund is June 27, 2018.
As of the 5/1/2020 prospectus, the Pax Sustainable Allocation Fund All-In Gross expense ratio includes indirect expenses (Acquired Fund Fees and Expenses “AFFE”) of 0.61%. AFFE are fees and expenses charged by their investment companies in which the Fund invests a portion of its assets and are not direct costs paid by Fund shareholders. The All-In Gross expense ratio for Institutional Class and the Individual Investor Class shares are 0.67% and 0.92%, respectively. Pax Sustainable Allocation Fund expense ratios, excluding indirect AFFE, are 0.05% and 0.30% for Institutional Class and Individual Investor Class shares, respectively.ˆ
Asset AllocationRelative Contribution (%)
Past performance is no guarantee of future results.
XThe Inception date of the Pax Large Cap Fund, Pax ESG Beta Dividend Fund and Pax Core Bond Fund is December 16, 2016.
Asset Allocation (%)(as of 9/30/20)
|Pax Large Cap Fund||41.3|
|Pax ESG Beta® Dividend Fund||5.5|
|Pax Small Cap Fund||2.6|
|Pax Global Opportunities Fund||1.7|
|Pax Global Environmental Markets Fund||2.0|
|Pax Ellevate Global Women's Leadership Fund||2.2|
|Pax MSCI EAFE ESG Leaders Index Fund||7.7|
|Pax Core Bond Fund||33.9|
|Cash & Other||3.8|
1The Morningstar Ratings™ shown are as of 9/30/2020. 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 638 funds overall, 4 stars out of 638 funds for 3-years, 4 stars out of 581 funds for 5-years, 3 stars out of 414 funds for 10-years. Pax Sustainable Allocation Fund Institutional Class (PAXIX) Morningstar ratings were 4 stars out of 638 funds overall, 4 stars out of 638 funds for 3-years, 4 stars out of 581 funds for 5-years, 4 stars out of 414 funds for 10-years.
2Rankings in other time periods may be lower. Comparison based on the Morningstar 50%-70% Equity peer group for the period ending 9/30/20. The Pax Sustainable Allocation Fund’s Institutional Class performance for the 1-year period ranked 63 out of 676 (10th percentile), for the 3-year period ranked 81 out of 638 (14th percentile), for the 5-year period ranked 93 out of 581 (17th percentile), and for the 10-year period 123 out of 414 (31st percentile). The Pax Sustainable Allocation Fund’s Investor Class performance for the 1-year period ranked 77 out of 676 (12th percentile), for the 3-year period ranked 90 out of 638 (15th percentile), for the 5-year period ranked 108 out of 581 (20th percentile), and for the 10-year period 142 out of 414 (35th percentile).
3 The Morningstar Sustainability Rating measures how well the companies in a fund’s portfolio manage their environmental, social and governance (ESG) risks and opportunities relative to the fund’s peers. First, a Morningstar Portfolio Sustainability Score™ ranging from 0 to 100 is derived from an asset weighted average of the underlying company ESG scores quarterly. Next, scored funds are rated monthly: The top 10% receive 5 globes (High), the next 22.5% receive 4 (Above Average), the next 35% receive 3 (Average), the next 22.5% receive 2 (Below Average), and the bottom 10% receive 1 (Low). Sustainalytics provides company-level analysis used in the calculation of Morningstar’s Sustainability Score. A higher score indicates that a fund, on average, has more of its assets invested in companies that score well according to the Sustainalytics methodology. For details, visit http://morningstar.com/company/sustainability.
© 2020 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.
Sustainability Score for the Pax Sustainable Allocation Fund as of 6/30/2020 is 21.64. Percent Rank in Category is 5 and Sustainability Rating is 5 globes as of 8/31/2020. Sustainalytics provides company-level analysis used in the calculation of Morningstar’s Sustainability Score.
Top 10 Equity Holdings
(as of 9/30/20)
Microsoft Corp. 2.9%, Apple, Inc. 2.4%, Amazon.com, Inc. 1.8%, Procter & Gamble Co., The 1.5%, Lowe’s Cos., Inc. 1.4%, Voya Financial, Inc. 1.3%, Target Corp. 1.2%, United Parcel Service, Inc., Class B 1.2%, Merck & Co., Inc. 1.2% and Trane Technologies PLC 1.2%. Holdings are subject to change.
△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.