Performance and Portfolio Update

  • The Pax High Yield Bond Fund trailed its benchmark in the first quarter.
  • Dovish Federal Reserve commentary helped ease concerns about a slowing economy and, as a result, risk appetites returned broadly across all financial markets. Led by strong performance in the S&P 500 Index (13.7 percent), the high yield market also rebounded strongly after a poor fourth quarter of 2018, delivering a total return of 7.4 percent.
  • The Fund underperformed in the quarter primarily due to negative credit selection in the Energy and Retail sectors. Performance was also negatively impacted by an underweight to the Energy sector. The Fund’s underperformance during a very strong market recovery was consistent with our expectations, as the portfolio is more conservatively positioned.
  • Contributing to performance was strong credit selection in the Basic Industry sector, specifically, several home builders and building materials companies. Strong selection in the Capital Goods and Media sectors also helped relative performance.
  • After the strong recovery in the first quarter, we remain relatively cautious now that spreads have compressed to levels that are below long-term averages. While the outlook for corporate profits is still generally supportive, we are monitoring a number of growing risks, including slowing global economic activity, more volatile equity markets and, generally, more uncertain political policy. We remain focused on well-positioned companies with manageable debt loads, and we continue to focus on integrating our sustainability research to enhance our ability to select credits.

Performance

(as of 3/31/19)
Returns (%)Average Annual Returns (%)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Investor Class1.206.636.634.417.732.547.285.27
High Yield Bond Fund - Class A1.206.626.624.417.722.547.295.28
High Yield Bond Fund - Institutional Class1.076.546.544.517.952.767.555.45
BofA Merrill Lynch U.S. High Yield - Cash Pay - BB-B (Constrained 2%) Index1.127.347.346.337.764.7410.07
Lipper High Yield Bond Funds Index0.807.027.024.727.793.8710.19

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 paxstaging.wpengine.com

Figures include reinvested dividends, capital gains distributions and changes in principal value.

As of 5/1/18 prospectus, total annual High Yield Bond Fund operating expenses, gross of any fee waivers or reimbursements (excluding Acquired Fund fees and expenses), for Investor Class, Class A and Institutional Class shares are 0.99%, 0.99% and 0.74%, respectively.

1The inception date for the Pax High Yield Bond Fund Institutional Class is June 1, 2004, the Investor Class inception date is October 8, 1999, and the Class A shares inception date is May 1, 2013.

The performance information shown for Institutional Class shares represents the performance of the Investor Class shares for the period prior to Institutional Class inception date (June 1, 2004). 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. Institutional Class shares’ average annual return since June 1, 2004 is 5.91% (annualized).

The performance information shown for Class A represents the performance of the Investor Class shares for the period prior to Class A inception. Expenses have not been adjusted to reflect the expenses allocable to Class A shares. Class A inception date return since May 1, 2013 is 2.06% (annualized). A 1.00% CDSC (contingent deferred sales charge) may be charged on any shares sold within 18 months of purchase over $1 million. POP (public offering price) reflects the maximum sales load for the Fund’s Class A Shares of 4.50%.

Performance

(as of 3/31/19)
Returns (%)Average Annual Returns (%)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Class A (Load)-3.381.901.90-0.256.081.606.805.03

Performance Attribution


(as of 3/31/19)
Average Active Weights (%)
Total Relative Contribution (%)

Past performance is no guarantee of future results.

Portfolio Characteristics

(as of 3/31/19)
FundBenchmark
Effective Duration)3.413.67
Years to Maturity5.815.76
30 Day SEC Yield
Individual4.97%
Class A5.22%
Institutional4.97%

 


Top 10 Holdings

(as of 3/31/19)
Avantor, Inc., 144A, 6.000%, 10/1/24 0.8%, CCO Holdings, LLC/Capital Corp., 144A, 5.375%, 5/1/25 0.8%, United Rentals North America, Inc. 5.750%, 11/15/24 0.8%, Fly Leasing, Ltd., 6.375%, 10/15/21 0.8%, Hca, Inc., 5.875%, 5/1/23 0.7%, Air Canada, 7.750%, 04/15/21 0.7%, Standard Industries, Inc., 6.000%, 10/15/25 0.7%, Parkland Fuel Corp., 6.000%, 4/1/26 0.6%, U.S. Concrete, Inc., 6.375%, 6/1/24 0.6% and Performance Food Group, Inc. 5.500%, 6/1/24 0.6%. Holdings are subject to change.

Definitions

The S&P 500 Stock Index is an unmanaged index of large capitalization common stocks. One cannot invest directly in any index.
XThe ICE BofA Merrill Lynch High Yield Index tracks the performance of below investment grade, but not in default, US dollar denominated corporate bonds publicly issued in the US domestic market, and includes issues with a credit rating of BBB or below, as rated by Moody’s and S&P. One cannot invest directly in an index.
ƒEffective Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
~Years to Maturity (weighted average) is the number of years until the bond matures and/or expires.
°30-Day SEC Yield: An annualized yield based on the most recent 30-day period.

The statements and opinions expressed are those of the author 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.

PAX008538 (7/19)

Peter Schwab, CFA®

SVP, Portfolio Manager, Pax High Yield Bond Fund, Pax Sustainable Allocation Fund, Impax Asset Management LLC
Senior Vice President, Pax World Funds

Peter Schwab is SVP and Portfolio Manager of the Pax High Yield Bond Fund at Impax Asset Management LLC and a Senior Vice President at Pax World Funds. Peter is also a member of the portfolio management team of the Pax Sustainable Allocation Fund.

Prior to joining the firm, Peter was a Managing Director on the High Yield Bond and Loan Team at Goldman Sachs Asset Management. Peter joined Goldman Sachs Asset Management as a Senior Sector Analyst in 2000 and was promoted to Director of High Yield Research in 2010. Prior to joining Goldman Sachs Asset Management, Peter was an Investment Associate in the High Yield Group at Putnam Investments and a member of the High Yield Research Group at Donaldson, Lufkin and Jenrette.

Peter has a Bachelor of Arts in History and Economics from Union College and a Master of Business Administration in Finance from Columbia Business School. He is a CFA charter holder, a member of the New York Society of Security Analysts and holds the Series 7 and 63 registrations.

Peter Schwab is a registered representative of ALPS Distributors, Inc.

CFA® is a trademark owned by the CFA Institute.

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