Performance and Portfolio Update

  • The Pax High Yield Bond Fund trailed its benchmark by a small margin in the third quarter.
  • The high yield bond market performed well in the quarter as the ICE BofAML U.S. Cash Pay High Yield Indexx delivered a total return of 2.44%, bringing its year-to-date return to 2.50%. Continued strength in corporate earnings and low default activity combined with a modest net supply of new bonds have proven favorable for the asset class and driven spreads lower. The asset class has held up well despite modestly rising interest rates and weakness in Emerging Markets, a testament to the positive fundamentals for the U.S.-centric corporate issuers in the high yield market.
  • Poor security selection in Telecommunications and Energy were the primary detractors to relative performance. From an issuer perspective, both DISH Networks and Bausch Health were headwinds in the quarter as they performed well as Index holdings, but the Fund does not have exposure to either name.
  • Strong credit selection in the Retail, Capital Goods and Healthcare sectors helped performance. Highridge Brands and Petsmart contributed to performance as both names are stabilizing their operations and showing signs of improvement.
  • Despite low spreads and growing concerns about the length of this economic expansion, we are positioning the Fund with a risk target that is neutral to the benchmark. Our outlook for the medium-term corporate earnings trend remains positive and default rates should remain relatively low. We recognize that material upside is currently limited in the asset class but view the high current income as sufficient compensation for the fundamental risks that we currently see.

Performance

(as of 9/30/18)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Investor Class0.422.171.341.555.883.295.945.30
High Yield Bond Fund - Class A˜0.572.321.501.715.933.325.965.32
High Yield Bond Fund - Institutional Classƒ0.442.241.671.946.203.576.215.49
ICE BofAML U.S. High Yield - Cash Pay - BB-B (Constrained 2%) Index0.502.381.902.307.345.388.54
Lipper High Yield Bond Funds Index0.512.232.082.706.974.827.86

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 5.98% (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 3.03% (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 9/30/18)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Class A (Load)-3.92-2.29-3.07-2.824.312.375.475.06

Performance Attribution


(as of 9/30/18)
Average Active Weights (%)
Total Relative Contribution (%)

Past performance is no guarantee of future results.

Portfolio Characteristics

(as of 9/30/18)
FundBenchmark
Effective Duration)3.854.06
Years to Maturity5.976.12
30 Day SEC Yield
Individual4.97%
Class A4.96%
Institutional5.22%

 


Top Ten Holdings

(as of 9/30/18)
Fly Leasing, Ltd., 6.375%, 10/15/21 0.8%, Hca, Inc., 5.875%, 5/1/23 0.8%, Scientific Games International, Inc., 10.000%, 12/1/22 0.8%, Exterran Energy Solutions Lp, 8.125%, 5/1/25 0.7%, Sprint Corp., 7.250%, 9/15/21 0.7%, Taylor Morrison Communities, Inc., 5.625%, 3/1/24 0.7%, United States Treasury Note, 2.500%, 5/31/20 0.7%, Manitowoc Company, Inc., 12.750%, 8/15/21 0.7%, HCA, Inc., 5.875%, 2/15/26 0.6% and Performance Food Group, Inc. 5.500%, 6/1/24 0.6%. Holdings are subject to change.

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.
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.

PAX008246 (1/19)

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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