Effective December 18, 2019, the name of the Pax Balanced Fund changed to the Pax Sustainable Allocation Fund.
Performance and Portfolio Update
- The Fund’s Institutional Class returned 5.51% in the fourth quarter, slightly outperforming its benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index) which returned 5.46% and outperforming its peer group index, the Morningstar 50%-70% Equity Allocation, which returned 5.03%.
- It was a strong quarter across equity markets, capping off exceptional 2019 performance. The S&P 500 Index† rose 9.07%, small cap stocks as represented by the Russell 2000 Index‡ rose by 9.94% and non-U.S. developed market stocks were up 8.17% as represented by the MSCI EAFE Index.ƒ Tailwinds to performance included an easing of global trade tensions and continued monetary accommodation by the Federal Reserve. Bonds, as represented by the Bloomberg Barclays US Aggregate Index,∼ were basically flat, returning 0.18% as interest rates rose modestly off of historic lows.
- The Pax Large Cap Fund, which represents the largest equity allocation, contributed the most to the Sustainable Allocation Fund’s performance, as it outperformed the S&P 500 Index by 1.4% during the quarter. The Pax ESG Beta Dividend Fund modestly detracted from performance as it lagged the Russell 1000 Index△ in a growth-oriented environment.
- Strong returns across equities and fixed income in 2019 have presented a challenging environment for allocating between stocks and bonds. With a flat environment for earnings, approximately 90% of the 2019 return in the S&P 500 Index was due to P/E expansion, leaving stocks at the higher end of historical valuations. Similarly, with interest rates near historic lows and tight credit spreads it is hard to find value in bonds. In such an environment, our equity and bond allocation remain near their neutral targets as we continue to strive to add value through the underlying fund strategies.
- During the quarter, the Pax Sustainable Allocation Fund Institutional Class maintained its 4-Star Overall Morningstar Rating based on risk-adjusted returns in the Morningstar Allocation 50%-70% Equity category (643 peers) for the period ending December 31, 2019,1 which we believe is reflective of both its strong performance and risk management. 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.2
- During the period, effective December 18, 2019, the name of the Pax Balanced Fund changed to the Pax Sustainable Allocation Fund. We believe this new name better captures the Fund’s investment approach and its unique long-term track record of serving investors interested in pursuing sustainable investing strategies. Importantly, the investment strategy has not changed in any way — only the name has changed. Full details are available at this blog post.
Performance(as of 12/31/19)
|Returns (%)||Average Annual Returns (%)|
|1-Month||Quarter||YTD||1 Year||3 Year||5 Year||10 Year||Since Inception3|
|Sustainable Allocation Fund - Investor Class||1.81||5.42||20.83||20.83||9.45||6.66||7.80||8.33|
|Sustainable Allocation Fund - Institutional Class||1.86||5.51||21.17||21.17||9.73||6.93||8.07||8.40|
|S&P 500 Index||3.02||9.07||31.49||31.49||15.27||11.70||13.56|
|60% S&P 500 Index / 40% Bloomberg Barclays U.S. Aggregate Bond Index||1.78||5.46||22.18||22.18||10.87||8.37||9.77|
|Morningstar Allocation--50% to 70% Equity||2.00||5.03||19.23||19.23||8.55||6.22||7.90|
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.com.
Figures include reinvested dividends, capital gains distributions and changes in principal value.
1 The Morningstar Ratings™ The Morningstar Ratings shown are as of 12/31/2019. 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 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 3 stars out of 643 funds overall, 4 stars out of 643 funds for 3-years, 3 stars out of 570 funds for 5-years, 3 stars out of 420 funds for 10-years. Pax Sustainable Allocation Fund Institutional Class (PAXIX) Morningstar ratings were 4 stars out of 643 funds overall, 4 stars out of 643 funds for 3-years, 4 stars out of 570 funds for 5-years, 3 stars out of 420 funds for 10-years.
2 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.
© 2020 Morningstar. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Sustainability Score for the Pax Sustainable Allocation Fund as of 9/30/2019 is 22.44. Percent Rank in Category is 5 and Sustainability Rating is 5 globes as of 11/30/2019. Sustainalytics provides company-level analysis used in the calculation of Morningstar’s Sustainability Score.
3The inception date for the Pax Sustainable Allocation Fund Institutional Class is April 2, 2007, and the Investor Class inception date is August 10, 1971. The performance information shown for Institutional Class shares includes the performance of Investor Class shares for the period prior to Institutional Class inception. 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.
As of the 5/1/2019 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. The Inception date of the Pax Global Opportunities Fund is June 27, 2018.
Asset Allocation (%)(as of 12/31/19)
|Pax Large Cap Fund||39.7|
|Pax ESG Beta® Dividend Fund||6.7|
|Pax Small Cap Fund||1.7|
|Pax Global Opportunities Fund||1.6|
|Pax Global Environmental Markets Fund||1.3|
|Pax Ellevate Global Women's Leadership Fund||1.1|
|Pax MSCI EAFE ESG Leaders Index Fund||7.6|
|Pax Core Bond Fund||35.9|
|Pax High Yield Bond Fund||1.2|
|Cash & Other||3.2|
Top 10 Equity Holdings
(as of 12/31/19)
Microsoft Corp. 2.6%, Apple, Inc. 2.5%, Amazon.com, Inc. 1.7%, Procter & Gamble Co., The 1.6%, Merck & Co., Inc. 1.5%, AT&T, Inc. 1.4%, JPMorgan Chase & Co. 1.3%, Ingersoll-Rand PLC 1.3%, Alphabet, Inc., Class A 1.2% and Accenture PLC, Class A 1.1%. Holdings are subject to change.
†Standard & Poor’s 500 Stock Index is an unmanaged index of large capitalization common stocks.
‡The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
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.
△The Russell 1000 Index measures the performance of the 1,000 largest U.S. companies, as measured by market capitalization. It is a subset of the Russell 3000 Index, which measures the largest 3,000 companies. The Russell 1000 Index is comprised of over 90% of the total market capitalization of all listed U.S stocks.
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.