Performance and Portfolio Update

  • The Pax High Yield Bond Fund trailed its benchmark by a small margin in the fourth quarter.
  • Weakness in the equity markets driven by fears of an economic slowdown were the primary culprit driving High Yield Bond spreads significantly wider during the fourth quarter. Other concerns included an unpredictable political environment, volatile oil prices, Chinese growth concerns and Brexit concerns.
  • The Fund underperformed in the quarter primarily due to negative credit selection in the Retail sector. Negative selection in the Basic Industry and Capital Goods sectors also detracted from performance.
  • Contributing to performance were the Real Estate and Banking sectors along with positive selection in the Telecommunications, Consumer Goods and Transportation sectors.
  • The Fund is currently positioned more defensively than it has been in several years. This process began in the early fall and continued through the fourth quarter as we perceived the fundamental environment deteriorating. Notably we have increased BB-rated holdings of select banks and cable TV companies. We have also been more selective with our B and CCC-rated companies and reduced the position sizes of some of our more volatile companies in the Energy sector.
  • Going forward, we expect more near-term volatility in the financial markets until we have more clarity for earnings prospects and until the Federal Reserve moderates the pace of monetary tightening. We remain focused on integrating our sustainability research to enhance our ability to select superior credits over time.

Performance

(as of 12/31/18)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Investor Class-1.90-4.35-3.07-3.075.471.757.514.99
High Yield Bond Fund - Class A˜-1.90-4.48-3.05-3.055.471.787.524.99
High Yield Bond Fund - Institutional Classƒ-1.89-4.30-2.70-2.705.742.027.785.17
BofA Merrill Lynch U.S. High Yield - Cash Pay - BB-B (Constrained 2%) Index-1.89-3.87-2.04-2.046.343.879.98
Lipper High Yield Bond Funds Index-2.36-4.95-2.98-2.986.123.059.82

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 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 5.56% (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 2.06% (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 12/31/18)
1-MonthQuarterYTD1 Year3 Year5 Year10 YearSince Inception1
High Yield Bond Fund - Class A (Load)-6.28-8.74-7.42-7.423.890.847.034.74

Performance Attribution


(as of 12/31/18)
Average Active Weights (%)
Total Relative Contribution (%)

Past performance is no guarantee of future results.

Portfolio Characteristics

(as of 12/31/18)
FundBenchmark
Effective Duration)4.074.28
Years to Maturity5.585.93
30 Day SEC Yield
Individual6.15%
Class A6.40%
Institutional6.16%

 


Top 10 Holdings

(as of 12/31/18)
Manitowoc Company, Inc., 12.750%, 8/15/21 0.9%, Scientific Games International, Inc., 10.000%, 12/1/22 0.9%, Fly Leasing, Ltd., 6.375%, 10/15/21 0.8%, Ally Financial, Inc. 4.250%, 4/15/21 0.8%, Lamb Weston Holdings, Inc., 144A, 4.625%, 11/1/24 0.8%, United Rentals North America, Inc. 5.750%, 11/15/24 0.8%, Hca, Inc., 5.875%, 5/1/23 0.8%, Air Canada, 7.750%, 04/15/21 0.8%, Ally Financial, Inc. 3.500%, 1/27/19 0.7% and Sprint Corp., 7.250%, 9/15/21 0.7%. Holdings are subject to change.

Credit quality ratings by Standard & Poor’s assist investors by evaluating the credit worthiness of many bond issues. A: An obligation rated “˜A’ is somewhat more susceptible to adverse effects of changes in circumstances and economic conditions than higher-rated obligations. However, the obligor’s capacity to meet its obligation is still strong. BBB: An obligation rated “˜BBB’ exhibits adequate protection parameters. Adverse economic conditions or changing circumstances are more likely to lead to weakened capacity of the obligor to meet its obligation. BB: An obligation rated “˜BB’ is less vulnerable to nonpayment than other speculative issues. It faces ongoing uncertainties and adverse business, financial, or economic conditions could lead to the obligor’s inadequate capacity to meet its obligation. B: An obligation rated “˜B’ is more vulnerable to nonpayment than obligations rated “˜BB,’ but the obligor currently has the capacity to meet its obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity to meet its obligation. CCC: An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its obligation. Adverse business, financial, or economic conditions could cause the obligor to be unable to meet its obligation. NR: This indicates that no rating has been requested, or that there is insufficient information on which to base a rating, or that Standard & Poor’s does not rate the obligation.

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.

PAX008396 (4/19)

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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