Performance and Portfolio Update
- The Pax Sustainable Allocation Fund returned 9.00% in the fourth quarter, outperforming its benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index∼) which returned 7.54%, while underperforming its peer group index, the Morningstar 50%-70% Equity Allocation, which returned 10.30%.
- Equity markets delivered very strong returns across the board, as favorable COVID vaccine news, the resolution of the U.S. Presidential election and the prospects of additional fiscal stimulus and accommodative monetary policy encouraged investors to look through the short-term negative impact from COVID-19. The S&P 500 Index△ rose 12.15% but significantly lagged small cap stocks, with the Russell 2000 Index† posting its highest quarterly return ever, 31.4%. The MSCI EAFE Indexƒ returned 16.1%, as Non-U.S. developed market stocks outperformed U.S. stocks. Investment grade bonds delivered a modest return in the current environment of low interest rates and tight spreads as the Bloomberg Barclays Aggregate Bond Index was up 0.7%.
- Relative to the benchmark, the Fund’s largest positive contributor to performance came from the Pax Large Cap Fund, which represents its largest equity allocation and outperformed the S&P 500 Index by 1.9%. An allocation to the Pax Small Cap Fund contributed as well, as small cap stocks significantly outperformed large cap stocks. The Fund also benefited from an underweight to fixed income, as bonds lagged stocks in the quarter. The modest allocation to cash detracted from performance, as did zero weight in Energy, which was the top performing equity sector in the fourth quarter.
- Equity market valuations remain near all-time highs, at least on an absolute basis, as investors appear willing to assume a return to normalized earnings power in 2022. However, with interest rates historically low, the relative valuation of equities to bonds does not appear as expensive. If we are in an extended period of low interest rates — as current Federal Reserve policy would imply — investors may be more tolerant of high equity valuations, but equities could potentially be susceptible to volatility as particular risks come into focus.
- With equity valuations stretched and bonds having limited return prospects due to interest rates near historic lows, we remain vigilant in ensuring the Sustainable Allocation Fund’s asset allocation reflects an appropriate tolerance for risk. In such an environment, we are 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 (636 peers) for the period ending December 31, 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 636 funds) over the 3-year and 22nd percentile (out of 575 funds) for 5-year period ending December 31, 2020 based on average annual returns within the Morningstar Allocation 50%-70% Equity category.2
Performance(as of 12/31/20)
|1-Month||Quarter||YTD||1 Year||3 Year||5 Year||10 Year||Since Inception3|
|Pax Sustainable Allocation Fund - Investor Class||2.50||8.95||16.24||16.24||10.42||10.03||8.21||8.49|
|Pax Sustainable Allocation Fund - Institutional Class||2.51||9.00||16.49||16.49||10.69||10.30||8.48||8.56|
|S&P 500 Index||3.84||12.15||18.40||18.40||14.18||15.22||13.88|
|60% S&P 500 Index / 40% Bloomberg Barclays U.S. Aggregate Bond Index||2.36||7.54||14.73||14.73||11.03||11.11||10.02|
|Morningstar Allocation--50% to 70% Equity||3.29||10.30||11.72||11.72||7.76||8.99||7.90|
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 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 12/31/20)
|Pax Large Cap Fund||41.2|
|Pax ESG Beta® Dividend Fund||5.4|
|Pax Small Cap Fund||2.9|
|Pax Global Opportunities Fund||1.7|
|Pax Global Environmental Markets Fund||2.1|
|Pax Ellevate Global Women's Leadership Fund||2.2|
|Pax MSCI EAFE ESG Leaders Index Fund||7.4|
|Pax Core Bond Fund||32.3|
|Cash & Other||4.7|
1The Morningstar Ratings™ shown are as of 12/31/2020. 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 636 funds overall, 4 stars out of 636 funds for 3-years, 4 stars out of 575 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 636 funds overall, 4 stars out of 636 funds for 3-years, 4 stars out of 575 funds for 5-years, 3 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 12/31/20. The Pax Sustainable Allocation Fund’s Institutional Class performance for the 1-year period ranked 95 out of 673 (16th percentile), for the 3-year period ranked 78 out of 633 (14th percentile), for the 5-year period ranked 117 out of 575 (22nd percentile), and for the 10-year period 148 out of 414 (35th percentile). The Pax Sustainable Allocation Fund’s Investor Class performance for the 1-year period ranked 104 out of 673 (17th percentile), for the 3-year period ranked 99 out of 636 (16th percentile), for the 5-year period ranked 157 out of 575 (28th percentile), and for the 10-year period 179 out of 414 (42nd percentile).
© 2021 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 12/31/20)
Microsoft Corp. 2.8%, Apple, Inc. 2.5%, Amazon.com, Inc. 1.7%, Voya Financial, Inc. 1.5%, Procter & Gamble Co., The 1.4%, Alphabet, Inc., Class A 1.3%, Applied Materials, Inc. 1.2%, Target Corp. 1.2%, Alphabet, Inc., Class C 1.1% and Lowe’s Cos., Inc. 1.1%. Holdings are subject to change.
△The S&P 500 Index is an unmanaged index of large capitalization common stocks.
†The Russell 2000 Index measures the performance of the small-cap segment of the U.S. 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. 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 U.S. 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.