Performance and Portfolio Update

  • The Pax High Yield Bond Fund outperformed its benchmark Index meaningfully in the first quarter due to both strong credit selection and sector allocation. The Fund avoided a number of higher risk companies in the Energy, Real Estate, Automotive and Basic Materials sectors, which was the primary contributor to relative performance during the quarter.
  • The High Yield market followed volatile equity markets in the quarter and was down -13.1% as represented the ICE BofA US High Yield Indexx. Responding to the risk of severe disruptions in the global economy and the uncertain economic outlook from COVID-19, High Yield spreads widened from 360 at year-end 2019 to 877 at the end of the first quarter 2020.1 Spreads this wide are consistent with recessionary environments and rising defaults.2 The Fund’s outperformance in these difficult market conditions is consistent with our expectations and highlights the strength of our credit selection and more conservative approach.
  • The Fund’s material underweight to Energy, and strong positioning within the sector, benefited performance in the quarter. Energy was the worst performing sector in High Yield, down -39.7% for the quarter. The more defensive Cable TV sector also contributed in the quarter with overweights in Charter Communications and Altice France SA. Lastly, the Fund was underweight Gaming, Leisure and Entertainment companies which were particularly hard hit in the quarter.
  • Negative attribution was primarily driven by underweights to a few sectors that performed well, including Healthcare and Technology. In addition, we had a handful of companies that underperformed in this period such as Bombardier, Ardagh Packaging, RLJ Lodging and iHeart Media.
  • We remain acutely focused on downside risk management and credit selection given the uncertainty facing the global economy in the next few quarters. With corporate credit spreads materially wider and valuations more attractive, we are willing to embrace more risk on the margin relative to our positioning in the last few years. Our focus on companies that have strong ESG profiles and sectors that we believe are better positioned for the transition to a more sustainable economy have served us well during this downturn.

Performance

(as of 3/31/20)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception3
High Yield Bond Fund - Investor Class-8.73-9.50-9.50-3.141.122.294.004.84
High Yield Bond Fund - Class A-8.71-9.48-9.48-3.131.122.324.024.85
High Yield Bond Fund - Institutional Classƒ-8.60-9.34-9.34-2.771.412.574.295.03
BofA Merrill Lynch U.S. High Yield - Cash Pay - BB-B (Constrained 2%) Index-10.65-11.87-11.87-5.511.292.925.61
Lipper High Yield Bond Funds Index-12.66-14.28-14.28-8.47-0.181.684.80

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 5/1/19 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 0.97%, 0.97% and 0.72%, respectively.

3The 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 5.34% (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 2.16% (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
after sales charge

(as of 3/31/20)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception3
High Yield Bond Fund - Class A (Load)-12.88-13.55-13.55-7.48-0.411.403.544.61

Performance Attribution


(as of 3/31/20)
Average Active Weights (%)
Total Relative Contribution (%)

Past performance is no guarantee of future results.

Portfolio Characteristics

(as of 3/31/20)
FundBenchmark
Effective Duration)4.394.37
Years to Maturity6.236.23
30 Day SEC Yield
Individual5.87%
Class A5.90%
Institutional6.12%

Top 10 Holdings

(as of 3/31/20)
Cco Holdings LLC, 4.750%, 3/1/30 1.1%, Usg Corp., 4.875%, 6/1/27 1.1%, Ard Finance Sa, 6.500%, 6/30/27 1.0%, Fly Leasing, Ltd., 6.375%, 10/15/21 0.9%, Hat Holdings I LLC, 5.250%, 7/15/24 0.9%, Neptune Finco Corp., 10.875%, 10/15/25 0.9%, Dell International LLC/EMC Corp, 144A, 7.125%, 6/15/24 0.8%, Cco Holdings LLC, 5.375%, 6/1/29 0.8%, Csc Holdings LLC, 5.75%, 1/15/30 0.8% and Verscend Escrow Corp., 9.75%, 8/15/26 0.8%. . Holdings are subject to change.

1 High yield bond spread data represented by option-adjusted spread (OAS) of the ICE BofA US High Yield Index.

2A high yield bond spread is the percentage difference in current yields of various classes of high-yield bonds compared against investment-grade corporate bonds, Treasury bonds, or another benchmark bond measure. Spreads are often expressed as a difference in percentage points or basis points.

Definitions

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.
Effective 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.

PAX009197 (7/20)

Peter Schwab, CFA®

Senior Vice President, Portfolio Manager, Pax High Yield Bond Fund, Pax Sustainable Allocation Fund

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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