- The Pax Sustainable Allocation Fund (“the Fund”) underperformed its blended benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index) in an environment where both equity and fixed income markets ended the quarter in negative territory.
- Despite a relief rally at the start of the quarter, equity and bond markets were weaker over the period as central banks moved to contain inflation by further raising interest rates. While rate hikes were not unexpected, the magnitude and the associated commentary took the market by surprise. The Federal Reserve indicated it would continue raising rates into next year, dampening hopes that a peak is in sight. Further volatility came from the United Kingdom, where the announcement of tax cuts, unsupported by full budget disclosure, led to sterling weakness and a sharp selloff in bonds.
- In this environment, US stocks and bonds delivered comparable negative returns as the S&P 500 Index (SPX)△ lost -4.9% and the Bloomberg Barclays US Aggregate Bond Index (Agg)∼ was down -4.8%. International equities lagged US Equities considerably more as the MSCI EAFE Indexƒ was down -9.4%.
- The Fund’s allocation to high yield bonds contributed positively to performance as these securities performed better than the broad investment grade market.
- The cash allocation was also a positive contributor in a quarter where both equity and bond markets posted negative returns.
- Relative to the Fund’s benchmark, the Pax Large Cap Fund (“the Large Cap Fund”), which represents the Sustainable Allocation Fund’s core allocation to US Equities, was the largest detractor as it underperformed its benchmark, the S&P 500. Underperformance was a function of negative impacts from sector allocation and some individual stock selection. The Large Cap Fund’s portfolio underweights to carbon-based energy, extractive commodities, and consumer discretionary names provided headwinds for the period; while these areas of the economy performed well in the quarter, they have substantial risks and limited opportunities vis a vis the transition to a more sustainable economy.
- The allocation to International Equities also detracted from performance relative to the Fund’s benchmark, as non-US equities underperformed US equities.
- Against a backdrop of higher inflation and rising rates, economic data is generally indicating slower growth across most regions. While corporate earnings overall have been broadly supportive, the outlook for demand remains uncertain. Companies must continue to navigate an environment of higher input prices, supply chain complexities and potentially slower growth. In this environment, we reduced our equity allocation in August after the July equity market relief rally, and we remained underweight equities at quarter end.
- Despite a challenging environment for equities, we believe market dislocations can offer opportunities for our underlying funds, as they often suggest stocks that have been sold off beyond their intrinsic long-term value. The Impax investment strategies that constitute the underlying funds in the Sustainable Allocation Fund remain focused on finding companies with strong market positions, elements of pricing protection and attractive valuations in this market.
Performance(as of 9/30/22)
|1-Month||Quarter||YTD||1 Year||3 Year||5 Year||10 Year||Since Inception1|
|Pax Sustainable Allocation Fund - Investor Class||-7.32||-5.62||-21.06||-16.98||3.71||4.94||6.39||7.99|
|Pax Sustainable Allocation Fund - Institutional Class||-7.30||-5.56||-20.93||-16.76||3.97||5.21||6.65||8.07|
|S&P 500 Index||-9.21||-4.88||-23.87||-15.47||8.16||9.24||11.70||-|
|60% S&P 500 Index / 40% Bloomberg Barclays US Aggregate Bond Index||-7.25||-4.75||-20.10||-14.85||3.85||5.70||7.50||-|
|Morningstar Allocation--50% to 70% Equity||-6.34||-4.48||-18.29||-14.80||2.49||3.60||5.64||-|
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.
As of the 5/1/2022 prospectus, the Pax Sustainable Allocation Fund All-In Gross expense ratio includes indirect expenses (Acquired Fund Fees and Expenses “AFFE”) of 0.57%. 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 Investor Class shares are 0.64% and 0.89%, respectively. Pax Sustainable Allocation Fund expense ratios, excluding indirect AFFE, are 0.05% and 0.30% for Institutional Class and Investor Class shares, respectively.
1The 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 AllocationRelative Contribution (%)
Past performance is no guarantee of future results.
Asset Allocation (%)(as of 9/30/22)
|Pax Large Cap Fund||39.9|
|Pax Global Sustainable Infrastructure Fund||3.0|
|Pax Small Cap Fund||2.7|
|Pax Global Opportunities Fund||2.4|
|Pax Global Environmental Markets Fund||2.2|
|Pax Ellevate Global Women's Leadership Fund||2.5|
|Pax International Sustainable Economy Fund||4.1|
|Pax Core Bond Fund||33.3|
|Pax High Yield Bond Fund||4.4|
|Cash & Other||5.5|
Top 10 Equity Holdings
(as of 9/30/22)
Schneider Electric SE 0.8%, Microsoft Corp. 0.7%, AstraZeneca PLC 0.7%, Roche Holding, Ltd. 0.7%, ASML Holding NV 0.7%, Air Liquide SA 0.7%, Novo Nordisk A/S Class B 0.6%, Victory Capital Holdings, Inc., Class A 0.5%, Apple, Inc. 0.5% and SAP SE 0.5%. Holdings are subject to change.
△The S&P 500 Index is an unmanaged index of large capitalization common stocks.
∼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.
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.
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.