Effective December 18, 2019, the name of the Pax Balanced Fund changed to the Pax Sustainable Allocation Fund.
Performance and Portfolio Update
- The Pax Sustainable Allocation Fund returned 13.00% in the second quarter, slightly trailing its benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index∼) which returned 13.32% and performing in-line with its peer group index, the Morningstar 50%-70% Equity Allocation, which returned 13.05%.
- Equity markets quickly bounced back from unprecedented first quarter declines. This was largely a result of massive fiscal and monetary stimulus designed to stave off a severe recession. The S&P 500 Index△ returned 20.5%, its strongest quarter since the fourth quarter of 1998. Small cap companies were even stronger, as the Russell 2000 Index was up 25.4%. Non-U.S. equities, as represented by the MSCI EAFE Indexƒ, delivered a solid 14.9% return, but once again lagged U.S. equities. Fixed income trailed equity performance considerably, but the Bloomberg Barclays US Aggregate Index delivered a solid 2.9% return. Bond returns benefited from the contraction in corporate spreads as Federal Reserve intervention calmed credit market concerns.
- After benefitting relative to peers from an underweight to equities during the first quarter sell off, the Fund’s rebalancing discipline replenished the equity allocation as equity markets troughed helping the Fund better participate in the second quarter equity market rally. The Pax Core Bond Fund modestly contributed to Fund performance while the Pax Large Cap Fund modestly detracted from Fund performance relative to the benchmark.
- The impressive rebound in equity markets has resulted in stretched equity valuations that are pricing in a V-shaped recovery for the economy. While the economy should continue to benefit from the impact of the unprecedented stimulus efforts, the direction of the economy and the equity market will largely follow the course of the virus. Concerns are arising as the reopening of the U.S. economy has led to a resurgence in new cases of the virus. Markets also will be closely monitoring progress on a vaccine and therapeutic treatments. Given uncertainty across all these implications of the virus, we anticipate volatility to continue.
- In such an environment, we remain vigilant in assuring the Fund’s asset allocation reflects its risk parameters. While equity valuations are stretched, we also view bonds as unattractive with interest rates that remain near historic lows, and spreads that have contracted off highs. In such an environment, we are managing the equity allocation near its 60% neutral weight, with a modest underweight to fixed income and a modest allocation to cash.
- During the quarter, the Fund maintained its 4-star Overall Morningstar Rating based on risk-adjusted returns in the Morningstar Allocation 50%-70% Equity category (636 peers) for the period ending June 30, 2020, which we believe is reflective of both its strong performance and risk management.1 The Fund’s institutional class performance ranks in the 15th percentile (out of 636 funds) over the 3-year and 16th percentile (out of 558 funds) for 5-year period ending June 30, 2020 based on average annual returns within the Morningstar Allocation 50%-70% Equity.2 In addition, the Fund has received a 5-Globe Morningstar Sustainability Rating™, which is reflective of the Fund’s strong sustainability profile relative to peers.3
Performance(as of 6/30/20)
|1-Month||Quarter||YTD||1 Year||3 Year||5 Year||10 Year||Since Inception4|
|Pax Sustainable Allocation Fund - Investor Class||2.08||12.96||0.77||8.36||7.53||6.75||8.63||8.26|
|Pax Sustainable Allocation Fund - Institutional Class||2.12||13.00||0.87||8.61||7.80||7.02||8.90||8.33|
|S&P 500 Index||1.99||20.54||-3.08||7.51||10.73||10.73||13.99|
|60% S&P 500 Index / 40% Bloomberg Barclays U.S. Aggregate Bond Index||1.45||13.32||0.98||8.58||8.93||8.41||10.08|
|Morningstar Allocation--50% to 70% Equity||1.60||13.05||-3.58||2.30||5.04||5.22||7.88|
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.
4The Inception date of the Pax Global Opportunities Fund is June 27, 2018.
As of the 5/1/2020 prospectus, the Pax Sustainable Allocation Fund All-In Gross expense ratio includes indirect expenses (Acquired Fund Fees and Expenses “AFFE”) of 0.61%. AFFE are fees and expenses charged by their investment companies in which the Fund invests a portion of its assets and are not direct costs paid by Fund shareholders. The All-In Gross expense ratio for Institutional Class and the Individual Investor Class shares are 0.66% and 0.91%, respectively. Pax Sustainable Allocation Fund expense ratios, excluding indirect AFFE, are 0.05% and 0.30% for Institutional Class and Individual Investor Class shares, respectively.ˆ
Asset AllocationRelative Contribution (%)
Past performance is no guarantee of future results.
XThe Inception date of the Pax Large Cap Fund, Pax ESG Beta Dividend Fund and Pax Core Bond Fund is December 16, 2016.
Asset Allocation (%)(as of 6/30/20)
|Pax Large Cap Fund||39.8|
|Pax ESG Beta® Dividend Fund||6.1|
|Pax Small Cap Fund||2.6|
|Pax Global Opportunities Fund||1.6|
|Pax Global Environmental Markets Fund||1.9|
|Pax Ellevate Global Women's Leadership Fund||2.1|
|Pax MSCI EAFE ESG Leaders Index Fund||7.6|
|Pax Core Bond Fund||34.8|
|Cash & Other||3.5|
1The Morningstar Ratings™ shown are as of 6/30/2020. The Morningstar Rating for funds, or ‘star rating’, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five- and ten- year (if applicable) Morningstar Rating metrics. The weights are 100% three-year rating for 36-59 months of total returns, 60% five-year rating, 40% three-year rating for 60-119 months of total returns, and 50% ten-year rating, 30% five-year rating, 20% three-year rating for 120 or more months of total returns. While the ten-year overall rating formula seems to give the most weight to the ten-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
Pax Sustainable Allocation Fund Investor Class (PAXWX) Morningstar ratings were 4 stars out of 636 funds overall, 4 stars out of 636 funds for 3-years, 4 stars out of 558 funds for 5-years, 3 stars out of 412 funds for 10-years. Pax Sustainable Allocation Fund Institutional Class (PAXIX) Morningstar ratings were 4 stars out of 636 funds overall, 4 stars out of 636 funds for 3-years, 4 stars out of 558 funds for 5-years, 4 stars out of 412 funds for 10-years.
2Rankings in other time periods may be lower. Comparison based on the Morningstar 50%-70% Equity peer group for the period ending 6/30/20. The Pax Sustainable Allocation Fund’s Institutional Class performance for the 1-year period ranked 49 out of 684 (9th percentile), for the 3-year period ranked 86 out of 636 (15th percentile), for the 5-year period ranked 91 out of 558 (16th percentile), and for the 10-year period 111 out of 412 (28th percentile). The Pax Sustainable Allocation Fund’s Investor Class performance for the 1-year period ranked 61 out of 684 (10th percentile), for the 3-year period ranked 107 out of 636 (18th percentile), for the 5-year period ranked 115 out of 558 (20th percentile), and for the 10-year period 133 out of 412 (33rd percentile).
3 The Morningstar Sustainability Rating measures how well the companies in a fund’s portfolio manage their environmental, social and governance (ESG) risks and opportunities relative to the fund’s peers. First, a Morningstar Portfolio Sustainability Score™ ranging from 0 to 100 is derived from an asset weighted average of the underlying company ESG scores quarterly. Next, scored funds are rated monthly: The top 10% receive 5 globes (High), the next 22.5% receive 4 (Above Average), the next 35% receive 3 (Average), the next 22.5% receive 2 (Below Average), and the bottom 10% receive 1 (Low). Sustainalytics provides company-level analysis used in the calculation of Morningstar’s Sustainability Score. A higher score indicates that a fund, on average, has more of its assets invested in companies that score well according to the Sustainalytics methodology. For details, visit http://morningstar.com/company/sustainability.
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Sustainability Score for the Pax Sustainable Allocation Fund as of 3/31/2020 is 21.85. Percent Rank in Category is 5 and Sustainability Rating is 5 globes as of 5/31/2020. Sustainalytics provides company-level analysis used in the calculation of Morningstar’s Sustainability Score.
Top 10 Equity Holdings
(as of 6/30/20)
Microsoft Corp. 3.2%, Apple, Inc. 2.2%, Amazon.com, Inc. 1.8%, Procter & Gamble Co., The 1.7%, Merck & Co., Inc. 1.3%, Lowe’s Cos., Inc. 1.2%, Verizon Communications, Inc. 1.2%, Bristol-Myers Squibb Co. 1.1%, Alphabet, Inc., Class A 1.1% and Target Corp. 1.1%. Holdings are subject to change.
△The S&P 500 Index is an unmanaged index of large capitalization common stocks.
ƒThe MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. Performance for the MSCI EAFE Index is shown “net”, which includes dividend reinvestments after deduction of foreign withholding tax.
∼The Bloomberg Barclays US Aggregate Bond Index is a broad base index, maintained by Bloomberg L.P. often used to represent investment grade bonds being traded in United States.
One cannot invest directly in an index.
CFA® is a trademark owned by the CFA Institute.
Diversification does not eliminate the risk of experiencing investment loss.
The statements and opinions expressed are those of the authors 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.