Pax Balanced Fund Commentary Q4 2018

Performance and Portfolio Update

• The Pax Balanced Fund underperformed its benchmark (60% S&P500/40% Bloomberg Barclays US Aggregate Bond Index) in the fourth quarter but outperformed its Morningstar Allocation 50%-70% Equity peer group index which is representative of multi-asset funds with similar risk and asset allocation objectives.
• Equity markets sold off significantly in the fourth quarter, with the S&P 500 Index^† down -13.52%, as investors reacted to concerns about the onset of the next recession, rising interest rates, disruptions from trade/tariffs and the prospect of slowing earnings growth in 2019. Non-U.S. developed market stocks also were off significantly, with the MSCI EAFE Index^‡ down -12.54%, but in a reversal of recent results, they modestly outperformed U.S. equities primarily due to a stronger December. Bonds delivered a positive return as the Bloomberg Barclays US Aggregate rose 1.64%.
• The allocation to the Pax Large Cap Fund was the largest detractor to performance. After delivering strong performance through the third quarter, the Large Cap Fund’s cyclical holdings were particularly hard hit during the market downturn as fears of higher interest rates and recession weighed on multiples. The Pax MSCI EAFE ESG Leaders Index Fund and Pax ESG Beta Dividend Fund were positive contributors, as was the modest allocation to cash.
• The Fund’s equity allocation was reduced early in the quarter and remains modestly below its 60% neutral target. The fixed income allocation remains in line with its 40% target, with the Fund maintaining a modest, transitional allocation to cash. The fourth quarter decline in the market brought equity prices to more attractive valuation levels, both relative to its own history and investment grade bonds, particularly with the 10-year Treasury closing the year at a yield of 2.69%. Amid this volatility, we are continually assessing whether current valuations across asset classes fully reflect a myriad of risks or if recent volatility has overly discounted these risks.
• The Pax Balanced Fund Institutional Class ranked in the 22nd percentile in the Morningstar 50%-70% Equity peer group for the one-year period ended 12/31/18. We believe the Fund’s 28th percentile ranking for the five-year period ended 12/31/2018 is reflective of both its strong performance and risk management.*

*Rankings in other time periods may be lower. Comparison based on the Morningstar 50%-70% Equity peer group for the period ending 12/31/18. The Pax Balanced Fund’s Institutional Class performance for the 1-year period ranked 157 out of 775 (22nd percentile), for the 3-year period ranked 283 out of 697 (42nd percentile), for the 5-year period ranked 163 out of 610 (28th percentile), and for the 10-year period 240 out of 440 (55th percentile). The Pax Balanced Fund’s Investor Class performance for the 1-year period ranked 186 out of 775 (25th percentile), for the 3-year period ranked 364 out of 697 (52nd percentile), for the 5-year period ranked 210 out of 610 (34th percentile), and for the 10-year period 276 out of 440 (63rd percentile).

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

¹The inception date for the Pax Balanced 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 5/1/2018 prospectus, the Pax Balanced 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 Balanced Fund expense ratios, excluding indirect AFFE, are 0.05% and 0.30% for Institutional Class and Individual Investor Class shares, respectively. The management fee is a unified fee that includes all of the operating costs and expenses of the Fund (other than taxes, charges of governmental agencies, interest, brokerage commissions incurred in connection with portfolio transactions, distribution and/or service fees payable under a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940 and extraordinary expenses), including accounting expenses, administrator, transfer agent and custodian fees, Fund legal fees and other expenses. (For this purpose, Impax Asset Management LLC does not consider acquired fund fees and expenses to be operating costs and expenses of the Fund.)

Asset Allocation Relative Contribution (%)

Top 10 Equity Holdings

(as of 12/31/18)
Microsoft Corp. 2.1%, Amazon.com, Inc. 1.9%, Apple, Inc. 1.5%, Ingersoll-Rand PLC 1.2%, JPMorgan Chase & Co. 1.2%, Waste Management, Inc. 1.2%, IBM 1.1%, Eli Lilly & Co. 1.1%, Merck & Co., Inc. 1.1% and Alphabet, Inc., Class A 1.1%. Holdings are subject to change.

Definitions

^†Standard & Poor’s 500 Stock Index is an unmanaged index of large capitalization common stocks.
^‡The 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. One cannot invest directly in an index.

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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.

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