Performance and Portfolio Update

  • The Pax High Yield Bond Fund Institutional Class underperformed its benchmark by 12 basis points”  in the quarter. Adverse credit selection in the Retail and Leisure sectors and an underweight to the Utility sector drove the underperformance. Conversely, strong credit selection in the Energy, Media and Technology sectors was additive to performance during the quarter.
  • While fourth quarter returns for the high yield asset class were relatively modest at .40%, as represented by BofA Merrill Lynch U.S. High Yield — Cash Pay (Constrained 2%) Index, this contributed to a strong total return performance overall in 2017 of 7.48%. Improving economic indicators, moderate inflation, low default activity and modest net supply have all contributed to the favorable high yield market environment. The Fund’s performance in the quarter is consistent with our expectations in strong market conditions.
  • After a multi-year rally in High Yield, we are approaching historically low spreads and very low absolute yields. While the economic backdrop remains supportive for the asset class, a number of geopolitical risks are present and the potential for monetary tightening could cause investors to reduce their risk-taking appetite. As such, we are becoming more defensive and taking steps to reduce risk in the portfolio on the margin.
  • The recent tax reform has mixed implications for high yield companies. Lower tax rates are beneficial but will likely be offset by lower limits for interest deductibility. This is particularly impactful for lower-rated companies, which the Fund has relatively low exposure to. We are not planning any material re-positioning of the portfolio because of these changes.

Performance

(as of 12/31/17)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Individual Investor Class-0.030.216.376.374.503.765.395.48
High Yield Bond Fund - Class A-0.020.216.366.364.503.785.405.49
High Yield Bond Fund - Institutional Class-0.010.276.646.644.714.025.655.66
BofA Merrill Lynch U.S. High Yield - Cash Pay - BB-B (Constrained 2%) Index0.200.396.986.986.065.587.33
Lipper High Yield Bond Funds Index0.370.617.537.535.435.226.47

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 paxworld.wpengine.com

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

As of 5/1/17 prospectus, total annual High Yield Bond Fund operating expenses, gross of any fee waivers or reimbursements (excluding Acquired Fund fees and expenses), for Individual Investor Class, Class A, and Institutional Class shares are 0.99%, 0.98% and 0.74%, respectively.

1The inception date for the Pax High Yield Bond Fund Institutional Class is June 1, 2004, the Individual 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 Individual 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 6.24% (annualized).

The performance information shown for Class A represents the performance of the Individual 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 3.19% (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 12/31/17)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Class A (Load)-4.51-4.261.531.532.922.854.925.22

Performance Attribution


(as of 12/31/17)
Average Active Weights (%)
Total Relative Contribution (%)

Past performance is no guarantee of future results.

Portfolio Characteristics

(as of 12/31/17)
FundBenchmark
Effective Duration)3.82%4.04%
Years to Maturity6.276.46
30 Day SEC Yield
Individual4.46%
Class A4.46%
Institutional4.71%

 


Top Ten Holdings

(as of 12/31/17)
HCA, Inc., 5.875%, 2/15/26 1.3 %,Sally Holdings LLC, 5.625%, 12/1/25 0.8%, Ard Finance SA, 7.125%, 9/15/23 0.8%, Charlotte Russe, Inc., 6.750%, 05/21/19 0.8%, Royal Bank Of Scotland PLC, 6.125%, 12/15/22 0.8%, Fly Leasing, Ltd., 6.375%, 10/15/21 0.8%, Sirius XM Radio, Inc., 5.375%, 4/15/25 0.8%, Sprint Communications, Inc., 7.000%, 8/15/20 0.8%, First Data Corp., 5.000%, 1/15/24 0.7% and Bluescope Steel Finance LLC, 6.500%, 5/15/21 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.
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.

PAX007667 (4/18)

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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