Performance and Portfolio Update

  • The Pax High Yield Bond Fund trailed its benchmark Index in the second quarter primarily due to poor sector allocation, specifically a material underweight in the Energy sector. The Fund also faced headwinds with its more conservative approach during the rapid recovery from the sharp sell-off in March. The underperformance was partially offset by strong credit selection in a number of sectors including Services, Leisure, Healthcare and Media.
  • The high yield market recovered strongly from the weakness in the first quarter and delivered a total return of 9.6% as represented the ICE BofA US High Yield Index.x  Responding primarily to the aggressive Federal Reserve actions taken to support credit markets, high yield spreads declined materially from 877 at the end of the first quarter to 644 at the end of the second quarter.1 The recovery was also driven by strong equity markets, higher oil prices and growing optimism about normalizing economic activity. The Fund’s underperformance during these bullish market conditions was consistent with our expectations.
  • The Fund’s material underweight to the Energy sector detracted from performance in the quarter.  Energy as a sector was up 33.1% and was one of the best performing sectors in the period. Our overweight in the more defensive Media sector (Cable TV) also detracted in the quarter as this defensive sector lagged the overall market. Lastly, the Fund was more conservatively positioned in the shorter maturities of Ford, Sprint and T-Mobile bonds which detracted in the period.
  • On the positive side, the Fund benefited from very strong credit selection. We avoided a number of poor performing companies like Hertz, Bausch Health and Wynn Resorts and benefited from active overweights in strong performing names such as Ardagh, Endo, RLJ Lodging and Avantor.
  • We remain focused on downside risk management and credit selection given the uncertainty facing the global economy in the next few quarters. While corporate credit spreads are wider than long-term averages, we have been cautious with risk taking and remain defensibly positioned. 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 has served us well during this downturn. We are committed to the consistent execution of this differentiating approach.

Performance

(as of 6/30/20)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception3
High Yield Bond Fund - Investor Class0.918.66-1.662.683.454.155.085.20
High Yield Bond Fund - Class A1.068.81-1.502.843.504.185.115.22
High Yield Bond Fund - Institutional Class1.08
8.75
-1.403.093.75
4.41
5.35
5.40
BofA Merrill Lynch U.S. High Yield - Cash Pay - BB-B (Constrained 2%) Index0.62
9.42
-3.57
0.563.624.78
6.54
Lipper High Yield Bond Funds Index0.66
9.27
-6.34
-2.70
2.17
3.48
5.82

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 5/1/20 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 0.96%, 0.96% and 0.71%, respectively.

Performance
after sales charge

(as of 6/30/20)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception3
High Yield Bond Fund - Class A (Load)-3.55
3.86
-5.93
-1.72
1.94
3.22
4.62
4.98

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 5.81% (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 3.29% (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%.

Past performance is no guarantee of future results.

Portfolio Characteristics

(as of 6/30/20)
FundBenchmark
Effective Duration)4.014.30
Years to Maturity6.326.52
30 Day SEC Yield
Individual4.61%
Class A4.62%
Institutional4.85%

Top 10 Holdings

(as of 6/30/20)
Usg Corp., 4.875%, 6/1/27 1.0%, Verscend Escrow Corp., 9.75%, 8/15/26 1.0%, Hat Holdings I LLC, 5.250%, 7/15/24 0.9%, Standard Industries, Inc., 5.0%, 2/15/27 0.9%, Sprint Capital Corp., 8.75%, 3/15/32 0.8%, Par Pharmaceutical, Inc., 7.5%, 4/1/27 0.8%, Fly Leasing, Ltd., 6.375%, 10/15/21 0.8%, Altice France Sa, 7.375%, 5/1/26 0.8%, Csc Holdings LLC, 5.75%, 1/15/30 0.8%, and Cco Holdings LLC, 5.375%, 6/1/29 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. 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.

Definitions

x The 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.

PAX009346 (10/20)

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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