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Domini Social Bond Fund ®

Fund Information

$11.17
Daily Price (NAV)
as of 2/9/2016
Symbol DSBFX
Daily NAV Change $-0.01 (-0.09%)

Key Documents

Overview

Investor Shares Overview​

Investment Objective

The Fund seeks to provide its shareholders with a high level of current income and total return by investing in bonds and other debt instruments that meet the Fund's social and environmental standards.

Investment Strategy

The Fund normally invests at least 85% of assets in intermediate-term, investment-grade fixed-income securities, including government agency, corporate, mortgage-backed and asset-backed securities, taxable municipal bonds, and U.S. dollar-denominated bonds issued by non-U.S. entities.
 
The Fund seeks to invest up to 10% of its assets in debt instruments and other investments that provide a high level of community impact. These investments may be illiquid, unrated, and may carry greater credit risks than its other holdings.

Management

Investment Advisor and Sponsor: Domini Social Investments LLC
 
Subadvisor: Wellington Management Company LLP. Campe Goodman, CFA, is primarily responsible for the day-to-day management of the Fund, assisted by other members of Wellington Management's US broad market team.

Social and Environmental Standards

To determine which securities are eligible for investment, Domini evaluates the Fund’s current and potential corporate debt instruments against its social and environmental standards based on the businesses in which they engage, as well as on the quality of their relations with key stakeholders, including communities, customers, ecosystems, employees, investors, and suppliers.

For noncorporate issuers, Domini seeks to identify investments with a positive impact on communities.

Domini may determine that a security is eligible for investment even if its profile reflects a mixture of positive and negative social and environmental characteristics.

Community Economic Development

The Fund's community economic development focus is in the areas of small business loans and affordable housing for the economically disadvantaged.

Investor Profile

Who Should Invest

  • Investors seeking a high level of current income and total return
  • Investors seeking exposure to the bond market to diversify their portfolio
  • Investors who wish to support the Fund's socially responsible investment standards and its community development emphasis

Who Should Not Invest

  • Investors unwilling or unable to accept fluctuations in share price due to risks associated with the bond market

Performance

Investor Shares Performance

Month-End Returns as of 1/31/16
YTD1 Yr3 Yr*5 Yr*10 Yr*Since Inception (6/1/00)*
DSBFX1.37%-0.98%1.00%2.15%3.62%4.37%
BIA1.25%1.08%1.98%2.93%4.38%5.13%
Barclays U.S. Aggregate1.38%-0.16%2.15%3.51%4.66%5.46%

Quarter-End Returns as of 12/31/15
YTD1 Yr3 Yr*5 Yr*10 Yr*Since Inception (6/1/00)*
DSBFX-0.46%-0.46%0.41%1.89%3.49%4.30%
BIA1.21%1.21%1.41%2.74%4.26%5.08%
Barclays U.S. Aggregate0.55%0.55%1.44%3.25%4.52%5.39%
Calendar Year Returns
DSBFXBIABUSA
2015-0.46%1.21%0.55%
20143.74%4.12%
2013-1.97%-1.02%
20122.50%3.56%
20115.85%5.97%
20104.74%6.15%
20095.77%6.46%
20085.69%4.86%
20076.00%7.02%
20063.38%4.58%
20051.56%2.01%
20042.81%3.74%
20032.31%3.81%
20028.85%9.51%
20018.34%8.67%

Quarterly Returns
DSBFXBIABUSA
4th Qtr 2015-0.51%-0.51%-0.57%
3rd Qtr 20151.15%1.08%1.23%
2nd Qtr 2015-2.07%-0.67%-1.68%
1st Qtr 20151.01%1.32%1.61%
4th Qtr 20141.08%1.20%
3rd Qtr 2014-0.09%0.03%
2nd Qtr 20141.35%1.62%
1st Qtr 20141.36%1.20%
4th Qtr 2013-0.39%-0.14%
3rd Qtr 20130.68%0.76%
2nd Qtr 2013-2.24%-1.78%
1st Qtr 2013-0.02% 0.15%

*Average annual total returns.

Annual Expense Ratio: Gross: 1.24% / Net: 0.95%. Per current prospectus. Domini has contractually agreed to cap Investor share expenses to not exceed 0.95% until 11/30/16, subject to earlier modification by the Fund’s Board of Trustees. See prospectus for details. The Funds’ performance would have been lower had these fees not been waived.

Holdings

Ten Largest Holdings as of 12/31/15
ISSUER% OF PORTFOLIO
Freddie Mac (0.5% due 5/13/2016)5.2%
Fannie Mae TBA 30 YR (3.5% due 1/14/2046)4.0%
Ginnie Mae II (3.5% due 1/21/2046)3.3%
Fannie Mae (5.625% due 7/15/2037)2.4%
Fannie Mae pool AS6408 (3.5% 1/1/2046)1.9%
Ginnie Mae II (3.0% due 1/21/2046)1.8%
Federal Home Loan Mortgage Cor (3.5% due 12/1/2045)1.8%
Fannie Mae pool AM7067 (3.11% due 1/1/2021)1.5%
Fannie Mae pool 471333 (3.12% due 8/1/2022)1.4%
Fannie Mae pool AM4253 (3.22% due 9/1/2020)1.3%
TOTAL24.7%
Sector Weightings as of 12/31/15
SECTOR% OF PORTFOLIO
Mortgage Backed Securities58.3%
Investment Grade Credit26.7%
U.S. Govt Agencies9.5%
Bank Loans7.0%
Commercial Mortgage Backed Securities5.0%
Tax Exempt Municipal0.3%
High Yield Credit0.1%
Asset Backed Securities0.0%
Developed Non U.S. Dollar Denom.-2.1%
Cash & Cash Equivalents-4.7%
Total100%

View the most recent quarterly holdings report filed with the Securities and Exchange Commission.

 

Characteristics

All data as of 12/31/2015 unless otherwise noted.

Portfolio Composition by Credit Quality1

Aaa 4.58%
Aa 64.71%
A 6.54%
Baa 18.39%
Ba 5.67%
B -0.08%
Below B 0.23%
Cash & Cash Offsets2 -4.67%
Not Rated3 4.62%

Portfolio Statistics

  DSBFX BUSA4
Avg. Effective Maturity (Yrs.) 8.55 7.46
Total Number of Holdings5 331 9,682
 
1. Credit-quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Credit-quality ratings for each issue are obtained from Moody's Investors Service (Moody's) and Standard & Poor's (S&P). When two bonds receive different ratings from Moody’s and S&P, we take the lower of the two ratings into consideration.  Ratings do not apply to the Fund itself or to Fund shares. Ratings may change.
2. May include Cash, Cash Equivalents (defined as issued with 1 year to maturity), Trade Receivables/Payables as of the trade date (not settlement date), STIF Instruments, and derivative cash offsets.
3. Securities that are not rated by either agency are listed as "Not Rated."
4. Barclays U.S. Aggregate Index
5. Excludes currency forwards, currency futures, currency options and cash offsets.
 

Commentary

Investor Shares Performance Commentary

The Fund is managed through a two-step process designed to capitalize on the strengths of Domini Social Investments and Wellington Management Company. Domini sets social and environmental guidelines and objectives for each asset class, and develops an approved universe of companies, and Wellington utilizes proprietary analytical tools to manage the portfolio. Wellington Management Company has been serving as submanager of the Fund since January 7, 2015.

Dowload Commentary as a PDF.

Total Returns as of December 31, 2015

  Oct
2015
Nov
2015
Dec
2015
4th Qtr
2015
YTD One
Year
Three
Year*
Five
Year*
Ten
Year*
Since Inception
(6/1/00)*
DSBFX -0.03% -0.02% -0.46% -0.51% -0.46% -0.46% 0.41% 1.89% 3.49% 4.30%
BIA -0.05% -0.21% -0.24% -0.51% 1.21% 1.21% 1.41% 2.74% 4.26% 5.08%
BUSA 0.02% -0.26% -0.32% -0.57% 0.55% 0.55% 1.44% 3.25% 4.52% 5.39%

The Fund's Investor shares outperformed the Barclays U.S. Aggregate Bond Index for the fourth quarter, returning -0.51% vs. the benchmark's -0.57% performance.

Market Overview

Performance across global fixed income markets was mixed during the fourth quarter, influenced by persistent divergences in economic growth and monetary policy. Many sectors struggled for direction as investors contemplated the potential implications of the US Fed’s first interest-rate increase in nearly a decade, while most other major central banks maintained accommodative stances. The slide in oil prices, weakening emerging market fundamentals, and fears of commodity-related defaults in the credit sector all weighed on investor sentiment.

Core inflation steadily inched higher, which gave the Fed confidence to raise rates in December. This widely anticipated rate hike marked an end to a seven-year period of near-zero interest rates. The FOMC voted unanimously to raise the Fed funds’ target rate range by 25 basis points (bps) to 0.25% – 0.50%, but insisted that the pace of interest-rate hikes will be very gradual and dependent on the direction of economic data. The FOMC seemingly achieved a smooth liftoff, judging by the market’s relatively muted reaction. Tepid growth and deflationary pressures forced other developed-market central banks to maintain their accommodative policies.

Data released during the quarter indicated that the US economy was still on a solid footing, with the domestic side of the economy offsetting weakness from abroad. Consumer fundamentals firmed as real incomes grew at a solid pace, the unemployment rate edged lower, and sentiment remained positive. Housing-market releases were mixed but still indicative of underlying strength in the sector. Home prices posted healthy gains of 5.5% year over year. Service-sector activity slowed somewhat but growth remained strong overall. The manufacturing sector was still the weakest link in the US cycle, as headwinds from the stronger US dollar and weak global demand weighed on activity.

Performance Commentary

  • In the fourth quarter, investment grade credit positioning was the biggest positive contributor to relative performance, followed by inflation positioning, and duration positioning.
  • The portfolio’s allocations to agency mortgage-backed securities (MBS) and high yield were the primary detractors from relative performance.

Wellington Management maintained a short duration position for the portfolio through November and December, believing that the U.S. economy was stronger than Treasury valuations suggested. In those months, U.S. interest rates rose on positive economic data and expectations of a December Fed rate hike. Ultimately, short duration positioning was additive to performance. The portfolio was positioned for a rise in inflation, which was also additive to relative performance as inflation expectations rose on steady positive U.S. economic momentum and a rise in core inflation, which reached 2% in November. The portfolio’s exposure to investment grade corporate bonds was also additive to relative performance. In particular, the portfolio benefited from security selection within industrials, and an overweight to financials. Within industrials, an underweight allocation to energy was additive to relative results. The fund also benefited from an overweight and security selection within taxable municipals.

Wellington Management positioned the portfolio for an overweight to mortgage-backed securities issued by U.S. government agencies during the quarter, favoring Fannie Mae Delegated Underwriting and Servicing bonds (“DUS”), which detracted from relative performance. Although agency MBS did outperform duration-equivalent Treasuries, FNMA DUS bonds performed poorly on widening bid/ask spreads. The Fund’s positioning to high yield securities, particularly bank loans, and the fund’s use of high yield derivatives (used as a source of liquidity and to manage overall portfolio risk), detracted from relative performance.

Community & Environmental Impact

The Fund seeks to play a positive role in the economic development of communities, focusing on key themes, including affordable housing, education and climate mitigation. In the fourth quarter, securities Domini characterizes as “high impact” represented 15.5% of the Fund’s total portfolio, including the following examples.

Affordable Housing

The Fund has maintained a long-term commitment to affordable housing, primarily through the purchase of securities backed by pools of mortgages. In particular, we favor Fannie Mae’s DUS bonds backed by a substantial percentage of units or loans to construct or refinance low-income and very low-income family housing. In our judgement, “substantial” means above 50% of units for low income, and above 30% of units for very low-income residents.

Public Health

The Fund owns a number of bonds focused on providing high quality healthcare to low-income and at-risk populations. One such bond is issued by City of Hope, a nonprofit public benefits corporation operating a specialty hospital and a number of research facilities and medical schools with a focus on cancer, diabetes treatments and HIV/AIDs prevention.

Climate Mitigation

In November, the Fund purchased bonds issued by Southern Power Company to finance existing or planned solar and wind power generation facilities in the U.S. Although this bond raised some controversy – Southern Power’s corporate parent is a large user of coal and owns nuclear power plants - the issuer, Southern Power Company, derives 9GW of its total power output from renewables and gas burning facilities and does not burn coal or deal in nuclear power. Although the parent company is ineligible for our portfolios, we chose to purchase this bond due to the urgent need to finance renewable energy and stabilize the global climate. Our purchase is also a sign of support for other utilities, which are responsible for over 30% of greenhouse gas emissions in the U.S., to transition their generation mix to lower-carbon fuel sources.

Making a Difference

Local & National Communities

Domini believes that all investments have social and environmental implications. Fixed income investments are no exception. Below, we highlight a few current holdings with a direct impact on communities and the environment. Learn more about how we select investments for the Domini Social Bond Fund’s portfolio.

 

Municipal Bonds

When identifying appropriate municipal bonds for the Fund, we are seeking to make investments that address unmet needs, and are particularly interested in bonds designed to improve healthcare in underserved areas.

One such investment held in the Fund is a hospital revenue bond issued by New York-Presbyterian Hospital, based in New York City, one of the nation's largest not-for-profit, non-sectarian hospitals, with nearly two million inpatient and outpatient visits each year. In 2013, 32% of the hospital’s patients received Medicare. In 2011 and 2012, provision of healthcare to the Medicare patient population generated annual shortfalls of more than $100 million. Among other important programs to increase access to healthcare for the communities it serves, the hospital operates an Ambulatory Care Network, a community-centered model consisting of thirteen primary care sites and seven school-based health centers providing a wide variety of medical services.

The Fund also purchased a bond issued by the State of California to improve school and recreation facilities, and a water utility, and a bond issued by Puerto Rico designed to fund the Commonwealth Government Employees Retirement System’s pension plan. 

Affordable Housing

The Domini Social Bond Fund has maintained a long-term commitment to affordable housing, which the Fund supports primarily through the purchase of securities backed by pools of mortgages.

The Fund also holds a security issued by Community Reinvestment Fund USA (CRF). CRF purchases existing multifamily affordable housing mortgages in order to recapitalize local affordable housing loan funds. CRF requires that the local lending partner reinvest those new funds in affordable housing.

The security held by the Fund includes loans purchased from Neighborhood Lending Partners (NLP), a Florida nonprofit affordable housing lender. NLP reinvested a portion of the funds from this bond in an 84 unit, family oriented, affordable housing community for farm-worker families. The greatest shortage in affordable housing is affordable housing units for large families. This NLP-funded project features three and four bedroom units, each with two bathrooms. It also includes family-oriented amenities like tot lots, a swimming pool, volleyball courts and classrooms.

Green Buildings

We believe that the real estate industry is in a unique position to reduce greenhouse gas emissions through energy efficiency improvements that are low cost and that create value within the underlying asset. We have therefore purchased several bonds designed to finance green buildings. In particular, we are looking for the U.S. Green Building Council’s LEED (Leadership in Energy and Environmental Design) certification, a comprehensive green building certification program that recognizes best-in-class building strategies and practices.

For example, the Fund holds a bond issued by the Massachusetts Institute of Technology to finance five buildings with strong environmental credentials; four have received LEED Gold certification and one received LEED Silver certification. Another bond, issued by Regency Centers LP, a firm that develops and manages community retail shopping centers throughout the United States, has been used to finance existing properties and properties under development where the company is seeking or has already been awarded LEED certification.