Manager Commentary

As of March 31, 2012

How did the Fund perform for the period? 
For the three-month period ended March 31, 2012, the Individual Investor Class and the Institutional Class of the Fund had total returns of 11.70% and 11.73%, respectively, vs. 11.56% for the MSCI World (Net) Index¹.

What factors contributed to the Fund’s performance?
First quarter global markets were extremely strong, as European sovereign fears dissipated thanks to the European Central Bank (ECB), which quite unexpectedly and very successfully introduced the Long-Term Refinancing Operation (LTRO) program. With this move, the ECB resolved the European credit market freeze-up and the sovereign liquidity crisis, at least in the near term. This led to a reversal of the “fear trade” that characterized global markets in 2011. Early in the quarter, investors moved back into attractively valued equities with solid fundamentals that had been marked down indiscriminately by last year’s market decline. In the second half of the quarter, the rally broadened, boosted by improving economic indicators such as global industrial production and declining U.S. unemployment. Volatility remained prominent as optimism on Europe was offset by fears elsewhere. In China, the economic slowdown brought about by the deflating property market bubble brought on investor concerns regarding the changing composition of China’s economy, relying less on investment and exports and more on domestic consumption. North African and Middle Eastern geopolitical risks also remained at the forefront of investors’ minds.  

From a sector perspective, the biggest beneficiaries of the reversal in investor sentiment and improving economic outlook were the information technology, financials and consumer discretionary sectors. Meanwhile, utilities and telecommunications stocks lagged due to their defensive nature. On a regional basis, emerging markets were the largest beneficiary of the rally, since they were the hardest hit in 2011, despite the solid fundamentals of many companies. Meanwhile, UK and Canadian market returns lagged as investors unwound some of their more defensive market allocations from 2011. Currencies were also a notable source of non-U.S. market returns. The euro, British pound and Swiss franc all appreciated 2.9%-4.0% versus the U.S. dollar. Some hard hit emerging currencies from 2011 reversed course with sizeable returns. Included in this lot were the Turkish lira, up 6.08%, and the Polish zloty, up 10.71% during the quarter. The yen was the only large global currency to depreciate against the U.S. dollar, losing 7.19% of its value during the quarter.

With this market backdrop, the Global Women’s Equality Fund benefited from regional allocation decisions, particularly from its exposure to outperforming emerging markets. The Fund had slightly positive gains from sector allocation decisions, mostly from an underweight to utilities. Stock selection was a positive contributor to performance, particularly in the U.S., UK and Canadian regions and in the health care, industrial, utilities and energy sectors. 

Can you discuss any significant changes in the Fund’s positioning throughout the period?
On a regional basis, we increased slightly exposure to Europe and emerging markets at the expense of exposure to the UK and Canada.  From a sector perspective, we increased exposure to energy and financials at the expense of technology and consumer discretionary.  

During the quarter we initiated new positions in handbag designer and retailer Vera Bradley, Inc., French insurer AXA SA, Spanish and German telecommunications companies Telefonica SA, ADR and Deutsche Telecom AG; Japanese software maker Trend Micro, Inc., and Turkish bank Turkiye Halk Bankasi AS. We liquidated positions in software patent company Interdigital, Inc., Dutch telecommunications company Koninklijke KPN NV and Chunghwa Telecom Co., Ltd., ADR, UK retailer Marks & Spencer Group PLC, Japanese disc and optical equipment manufacturer Hoya Corp.

Which stocks contributed positively to performance?
BMW AG, Timken Co. and Pentair, Inc. were among the top relative contributors to performance for the period.
 
BMW manufactures and sells luxury cars and motorcycles worldwide.  The stock returned 33.96% during the quarter and this strong performance, along with a large holding in the Fund, made BMW the largest positive contributor to the Fund performance. Much of this performance was a reversal of the indiscriminate sell-off of European equities in 2011 in response to sovereign crisis fears. In the face of investor fear, BMW delivered strong profits and an optimistic outlook for 2012 and beyond, which brought new and old investors back to the stock.
 
The country average for women on boards is 10.74%; BMW’s board is 15% female. BMW reports that women make up 13.1% of its workforce. The company has demographic reporting that breaks out gender, and the percentage of women in the workforce has been holding steady at just over 13% since 2005, while the percentage of women in management has grown from 6.9% in 2005 to 8% in 2009.

Timken is a leading global manufacturer of roller bearings and precision ball bearings, specialty steel components and transmission components and assemblies. A large portion of Timken’s growth over the past decade has come from China. Timken’s recent performance got a boost when they raised their earnings per share (EPS)² targets. They expressed confidence in the recovery in their aerospace business and their expectations that their continued focus on innovations and geographic expansion will drive revenue. It seems that the changes the company has made over the past five years to target more profitable, faster growing businesses is resulting in increased profitability. The stock appreciated 31.65% during the quarter.

At Timken there is one woman on the 12-member board of directors and there are two women among the 19 senior executives. According to the company’s global citizenship report, Timken has a global inclusion team and a Global Inclusion Advisory Council (GIAC). The global inclusion team sets the company’s overall diversity strategy, and team leaders are responsible for implementing and measuring tactics. The company also has a supplier diversity program in place to increase its purchases from women- and minority-owned suppliers.

Pentair is a diversified manufacturing company that provides professional tools and water products. Its recently announced merger with Tyco’s flow control business was received favorably by the market. Management has indicated that this will be an accretive acquisition and that the long-term effect of having a larger portion of sales from faster-growth markets is a positive. The stock appreciated 43.86%
during the quarter.

Two women serve on Pentair’s 10 member board of directors and one woman serves as a senior level executive. The percentage of women on the board of directors is 20%, which is higher than the U.S. national average of 12.32%.

Which stocks detracted from performance?
Among the companies that hurt Fund performance most during the period were Baker Hughes, Inc., Vodafone Group PLC, ADR, and Shiseido Co., Ltd. Baker Hughes is an energy service company. They provide products and services for oil and gas exploration. In March the company preannounced a profit warning. Natural gas rig counts continue to slide,which is hurting revenues. In addition, the company’s international expansion, which was supposed to provide better growth and profitability, is progressing more slowly than expected. The stock declined 13.52% during the quarter. We do believe that most of these issues are behind the company and maintain our position in the stock.

Vodafone provides mobile telecommunications services, including voice and data communications, in 35 countries around the world. The stock, which benefited from defensives characteristics such as strong cash flows and high dividend yields in 2011, lagged in the rally this quarter due in part to its defensive nature, but also due to competitive and regulatory pressures in its European markets. The stock lost 1.28% of its value during the quarter.

Shiseido is a leading global player in cosmetics with favorable trends, including a rising standard of living tailwind in the developing economies. During the quarter, Shiseido lost 3.54%, lagging the Japanese and global markets due to continuation of declining sales in Japan and uncertainty in the market regarding the success of Shiseido’s cost cutting plan. It is also strong in the gender arena relative to most listed Japanese companies, with a Gender Equality Committee (chaired by Shiseido’s president) responsible for implementing its Gender Equality Action Plan.

What is your market outlook, particularly with respect to how it will impact your Fund?
We are encouraged by monetary and fiscal policy moves in Europe and by improving economic fundamentals in the U.S., some emerging markets and parts of Europe. However, we expect market volatility to continue, driven by uncertainty over longer term sovereign credit concerns, as well as by the paradox of expansionary monetary policy combined with contractionary fiscal policies in many regions. It appears that investors have come to terms with some of the more dire scenarios still possible in Europe. Therefore, we feel it is quite likely that we will see a shift in investor focus to other geopolitical areas of concern outside of Europe.

These include:

• U.S. elections and campaign rhetoric, particularly related to trade                 isolationism, fiscal austerity and military intervention

• Continuation of populist uprisings around the world without obvious near term solutions for sources of discontent

• Iran: new threat of military entanglement and oil supply shocks

• Implications of China shifting growth focus from investment to                 consumption: lower sustained growth

Nevertheless, economic recovery in the aftermath of the global financial crisis appears to continue in regions with low levels of government and private sector debt, particularly in emerging market economies. This should serve as a buoy for global investor sentiment.

We expect continued volatility in the currency markets, with sovereign fears favoring liquidity, of which the U.S. dollar is the primary beneficiary, and a relief of those fears favoring growth and commodity currencies.

In this market environment, we maintain geographic diversification in the Fund with relatively neutral to slight underexposure to developed markets to make room for reasonable exposure to emerging markets (around 5%). We maintain an underweight to the financials sector, focusing on sustainably growing institutions with high capital ratios, but avoiding large parts of the sector, particularly European financials, that face sizeable unresolved balance sheet issues and the implementation of a much more restrictive regulatory environment. We have overweight positions in energy, which benefits from continued emerging market demand growth. Likewise, the Fund is overweight health care due to the very strong and sustainable cash flows in this sector. We maintain an underweight to the consumer discretionary sector, which is being hurt disproportionately from imposed fiscal austerity in many regions around the world.

We maintain our quality focus in the portfolio by investing in companies across all sectors and regions that we believe have more sustainable growth and return potential, better cash flows, higher dividend yields and stronger balance sheets than their peers.
 

Equity investments are subject to market fluctuations, the fund’s share price can fall because of weakness in the broad market, a particular industry, or specific holdings. Emerging market and international investments involve risk of capital loss from unfavorable fluctuations in currency values, differences in generally accepted accounting principles, economic or political instability in other nations or increased volatility and lower trading volume.
 
Portfolio holdings as of 03/31/12: Vera Bradley, Inc. (0.2%), AXA SA (1.1%), Telefonica SA, ADR (1.1%); Deutsche Telekom AG (1.3%); Trend Micro, Inc. (0.9%); Turkiye Halk Bankasi AS (1.0%), BMW AG (1.6%), Timken, Co. (1.2%); Pentair, Inc. (1.3%); Baker Hughes, Inc. (1.5%), Vodafone Group PLC, ADR (0.9%), Shiseido Co., Ltd. (1.2%). InterDigital, Inc., Koninklijke KPN NV, Chunghwa Telecom Co., Ltd., ADR, Marks & Spencer Group PLC and Hoya Corp. were not held by the portfolio as of 03/31/12. Holdings are subject to change.

Pax World Global Women’s Equality Fund, a series of Pax World Funds Series Trust I, acquired the Women’s Equity Fund on October 29, 2007. Performance information shown for periods prior to the acquisition is the performance of the Retail Class shares of the acquired Women’s Equity Fund, which has not been adjusted to reflect any differences in expenses between the acquired Women’s Equity Fund and the Pax World Global Women’s Equality Fund; if such expense adjustments were reflected, the returns would be higher than those shown. To obtain performance for the most recent quarter- and month-end, click here.

As of 12/31/11, total annual Global Women’s Equality Fund operating expenses, gross of any fee waivers or reimbursements, are 1.68% for the Individual Class shares and 1.43% for the Institutional Class Shares. Total Global Women’s Equality Fund operating expenses, net of fee waivers, reimbursements and acquired fund fees and expenses, are 1.24% for the Individual Class shares and 0.99% for the Institutional Class Shares. The Women’s Equity Fund’s investment adviser has contractually agreed to reimburse expenses (excluding Acquired Fund Fees and Expenses) allocable to Individual Investor Class shares of the Global Women’s EqualityFund to the extent such expenses exceed 1.24% of the average daily net assets of Individual Investor Class shares and 0.99% of Institutional Class shares. This reimbursement arrangement will remain in effect until at least December 31, 2015.

¹The MSCI World Large Cap Index is a subset of the MSCI World Index, and has a target coverage range of approximately 70% of the free float-adjusted market capitalization within the MSCI World Index. Performance for the MSCI World Large Cap Index is shown “net,” which includes dividend reinvestments after deduction of foreign withholding taxes. Investors cannot invest directly in any index.

Effective January 1, 2012, the performance benchmark of the Global Women's Equality Fund changed from the MSCI World Large Cap (Net) Index to the MSCI World (Net) Index. The Fund believes that the MSCI World Index better represents the investment strategies of the Global Women's Equality Fund and its global focus. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Investors cannot invest directly in any index.

²Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. It is typically used as an indicator of a company's profitability.

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