Manager Commentary
Co-Portfolio Managers
Christopher H. Brown is the Chief Investment Officer of Pax World Management Corp. He has over 20 years of investment experience. He joined Pax World in April 1998 as co-manager of the Pax World Balanced Fund and has served as its sole manager since October 2001. He is also the co-manager of the Pax World Growth Fund. Prior to joining Pax World, Mr. Brown was an Investment Consultant at Fahnestock & Co., Inc., a New York Stock Exchange brokerage firm, from 1987 to 1998, and a First Vice President from 1994 to 1998. He is a graduate of the Boston University School of Management with a concentration in finance.
Anthony Trzcinka, CFA® has over 10 years of investment experience and 15 years of overall finance experience. He is the co-manager of the Growth Fund and the assistant portfolio manager of the Pax World Balanced Fund. He has been associated with the Adviser since 2003. Prior to joining the Adviser, Mr. Trzcinka spent over 3 years at AEW Capital Management as an Assistant Vice President. He has an MBA degree from Northeastern University, a Bachelor of Arts from the University of Massachusetts and holds the CFA designation. Mr. Trzcinka is a member of the Boston Security Analyst Society and the CFA institute.
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View Q1 Market Commentary
As of March 31, 2009
How did the Fund perform for the period?
For the three-month period ended March 31, 2009, the Pax World Growth Fund returned -2.50%, outperforming the -4.54% return of the benchmark Russell 3000 Growth Index.1
What factors contributed to the Fund’s performance?
The Fund’s relative outperformance was led by stock selection and an overweight position in the consumer discretionary sector. Within this sector Amazon.com (1.8%*), Best Buy (2.1%*) and GameStop Corp. (1.6%*) each gained significantly. An underweighting in the consumer staples sector was another major contributor to performance. During the quarter investors sold defensive consumer staple names in favor of more growth-oriented companies.
On the negative side, the health care sector in general and Eclipsys Corp.* in particular underperformed during the period.
Can you discuss any significant changes in the Fund’s positioning throughout the period?
We continued to boost the Fund’s stake in information technology and energy names while reducing some positions that we believe became fully valued. Additionally, we ventured back into financials, adding to some of the Fund’s existing positions in trust banks and foreign banks.
Adding to technology and energy names has been consistent with the “early cyclical” strategy that we have mentioned in previous commentaries. Our strategy in financials has served us well. Stimulus funding, along with slightly improving fundamentals, has made additional exposure in these areas prudent. By increasing holdings in trust banks, we are taking what we believe is a conservative approach to the financials industry. As fundamentals improve we may consider adding higher beta stocks.
Which stocks contributed positively to performance?
Consumer stocks such as Whole Foods (1.6%*), Amazon.com (1.8%*), Best Buy (2.1%*) and GameStop (1.6%*) were all positive contributors to the Fund’s performance for the period.
Which stocks detracted from performance?
On the negative side, industrial companies Terex Corp (0.4%*) and Pall Corp (1.0%*) were hurt by the slowdown in construction. Software company Eclipsys Corp*, experienced a pull- back after a large run-up last year.
What is your market outlook, particularly with respect to how it will impact the Fund?
All three of the major market indexes, the Dow Jones Industrial Average, the S&P 500 Index and the NASDAQ Composite Index, started the year in negative territory. We mentioned in our last commentary that we were unsure that economic performance had bottomed and, in fact, it had not. However, we are starting to see a very slight improvement in some measures of the economy, such as an increase in consumer confidence and U.S. vehicle sales and a jump in home refinancing volumes during the first quarter. In addition some “early cyclical” sectors — technology and consumer discretionary, for example — have been some of the best performing sectors year-to-date. We are still guardedly optimistic regarding the potential for economic improvement in 2009 and are hopeful that the recent market trends exhibited during the first quarter will continue.
It’s important to keep in mind that the stock market typically looks out six months to a year or further. For this reason, we believe that some of the opportunities being presented to us today have the potential for long-term payoffs as the economic picture improves.
*Portfolio holdings as of 3/31/09. Holdings are subject to change. Eclipsys Corp. is not currently held by the Fund.
An investment in the fund involves risk, including loss of principal. Performance data quoted represents 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, click here. For standardized performance, click here.
Total annual Growth Fund operating expenses, gross of any fee waivers or reimbursements, are 1.67% for the Individual Clas shares and 1.41% for the Institutional Class shares. Total Growth Fund operating expenses, net of fee waivers, reimbursements and acquired fund fees and expenses, are 1.46% for the Individual Class shares and 1.21% for the Institutional Class Shares. The Growth Fund’s investment adviser has contractually agreed to reimburse expenses allocable to Individual Investor Class of the Growth Fund to the extent such expenses exceed 1.46% of the average daily net assets of Individual Investor Class shares and 1.21% of the Institutional Class shares. This reimbursement arrangement will remain in effect until at least December 31, 2012.
1The Russell 3000 Growth Index measures the performance of those companies in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies, as measured by market capitalization. Investors cannot invest directly in any index.