Performance and Portfolio Update

  • The Pax High Yield Bond Fund trailed its benchmark by 40 basis points (bps) in the quarter.
  • Portfolio holdings in the Consumer Goods and Retail sectors drove underperformance, while positive selection in the Telecommunications, Banking and Technology sectors helped relative performance.
  • The high yield bond market stabilized during the second quarter after a volatile first quarter. High Yield spreads did not change materially during the 2nd quarter, closing at 383 bps at June 30, 2018 — only 10 bps wider than December 31, 2017. Continued economic expansion, low default activity and notably low net supply of new issuance has been supportive of the market broadly. Sector returns in the quarter varied with pressure on the Automotive sector due in part to trade war concerns, while the Telecommunications sector performed well due to several large wireline companies performing better than originally feared.
  • We continue to manage the Fund with an overall risk target that is neutral to the benchmark. Despite relatively low spreads and yields, we continue to have a positive medium-term view on corporate earnings trends. In addition, we expect net issuance of high yield bonds to remain subdued which will likely be supportive from a technical standpoint. We would be more constructive if spreads were wider, but recognize that material upside is currently limited.
  • During the second quarter, Pax wrote to eight energy companies held in the Fund seeking clarity on their efforts to manage fugitive methane emissions and seeking information regarding water risks. The engagement focused on the environmental, economic and regulatory aspects of fugitive methane emissions, which if left unchecked may significantly reduce the benefit of natural gas as a bridge fuel. Information derived from this ongoing engagement will provide us with valuable insight into the companies’ approach to handling these risks and help us better evaluate investment opportunities in the high yield Energy sub-sector.

Performance

(as of 6/30/18)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Investor Class0.260.20-0.810.963.783.295.165.28
High Yield Bond Fund - Class A˜0.260.20-0.810.963.783.325.175.29
High Yield Bond Fund - Institutional Classƒ0.430.25-0.551.354.043.575.425.48
BofA Merrill Lynch U.S. High Yield - Cash Pay - BB-B (Constrained 2%) Index0.230.65-0.461.864.965.327.35
Lipper High Yield Bond Funds Index0.220.71-0.142.544.494.846.67

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 5.97% (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 2.72% (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 6/30/18)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Class A (Load)-4.25-4.27-5.27-3.552.182.374.705.03

Performance Attribution


(as of 6/30/18)
Average Active Weights (%)
Total Relative Contribution (%)

Past performance is no guarantee of future results.

Portfolio Characteristics

(as of 6/30/18)
FundBenchmark
Effective Duration)4.064.27
Years to Maturity6.066.27
30 Day SEC Yield
Individual5.00%
Class A4.98%
Institutional5.24%

 


Top Ten Holdings

(as of 6/30/18)
HCA, Inc., 5.875%, 2/15/26 1.2%, Standard Industries, Inc., 6.000%, 10/15/25 1.1%, Fly Leasing, Ltd., 6.375%, 10/15/21 0.8%, Royal Bank Of Scotland PLC, 6.125%, 12/15/22 0.8%, First Data Corp., 5.000%, 1/15/24 0.8%, Hca, Inc., 5.875%, 5/1/23 0.7%, Scientific Games International, Inc., 10.000%, 12/1/2022 0.7%, Esh Hospitality, Inc. 5.250%, 8/15/21 0.7%, Manitowoc Company, Inc. 12.750% 8/15/21 0.7% and Exterran Energy Solutions Lp, 8.125%, 5/1/25% 0.7%. Holdings are subject to change.

Definitions

A basis point (bps) is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.
A 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.
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.

PAX008022 (10/18)

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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