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Domini Impact Bond Fund sm

Fund Information

$11.29
Daily Price (NAV)
as of 09/21/2017
Symbol DSBFX
Daily NAV Change $0.00 (0.00%)

Overview

Investor Shares Overview​

Investment Objective

The Fund seeks to provide its shareholders with a high level of current income and total return.  

Investment Strategy

As a primary strategy, the Fund’s investment approach incorporates Domini’s social and environmental standards. 

The Fund normally invests at least 80% of its assets in investment-grade fixed-income securities, including government, corporate, mortgage-backed and asset-backed securities, and U.S. dollar-denominated bonds issued by non-U.S. entities.  The Fund maintains an effective duration within two years (plus or minus) of the portfolio duration of the securities comprising the Bloomberg Barclays U.S. Aggregate Bond Index­­.

Domini evaluates potential corporate debt instruments against social and environmental standards based on:

  • the businesses in which the issuer engages
  • the quality of its relations with key stakeholders, including communities, customers, ecosystems, employees, investors, and suppliers

With respect to noncorporate debt instruments, the Fund seeks to focus on three key themes:

  • Increasing access to capital for those historically underserved by the mainstream financial community
  • Creating public goods for those most in need
  • Filling capital gaps left by current financial practice

In particular, the Fund seeks noncorporate debt instruments that support:

  • Affordable housing
  • Small business development
  • Community revitalization
  • Rural Development
  • Education
  • The environment
  • Healthcare

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. Please see Domini’s Impact Investment Standards for further details.

Management

The Fund is managed through a two-step process designed to capitalize on the strengths of Domini Impact 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.  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.

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 responsible investment standards 

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 8/31/17
YTD1 Yr3 Yr*5 Yr*10 Yr*Since Inception (6/1/00)*
DSBFX3.81%0.46%2.44%1.71%3.61%4.31%
Bloomberg Barclays U.S. Aggregate3.64%0.49%2.64%2.19%4.40%5.24%

Quarter-End Returns as of 6/30/17
YTD1 Yr3 Yr*5 Yr*10 Yr*Since Inception (6/1/00)*
DSBFX2.42%0.37%2.12%1.60%3.67%4.27%
Bloomberg Barclays U.S. Aggregate2.28%-0.31%2.48%2.21%4.48%5.21%
Calendar Year Returns
DSBFXBBUSA
20163.44%2.65%
2015-0.46%0.55%
20143.74%5.97%
2013-1.97%-2.02%
20122.50%4.21%
20115.85%7.84%
20104.74%6.56%
20095.77%5.93%
20085.69%5.24%
20076.00%6.96%
20063.38%4.33%
20051.56%2.43%
20042.81%4.34%
20032.31%4.11%
20028.85%10.27%
20018.34%8.42%

Quarterly Returns
DSBFXBBUSA
2nd Qtr 20171.61%1.45%
1st Qtr 20170.80%0.82%
4th Qtr 2016-3.21%-2.98%
3rd Qtr 20161.25%0.46%
2nd Qtr 20162.36%2.21%
1st Qtr 20163.13%3.03%
4th Qtr 2015-0.51%-0.57%
3rd Qtr 20151.15%1.23%
2nd Qtr 2015-2.07%-1.68%
1st Qtr 20151.01%1.61%
4th Qtr 20141.08%1.79%
3rd Qtr 2014-0.09%0.17%
2nd Qtr 20141.35%2.04%
1st Qtr 20141.36%1.84%
4th Qtr 2013-0.39%-0.14%
3rd Qtr 20130.68%0.57%
2nd Qtr 2013-2.24%-2.32%
1st Qtr 2013-0.02%-0.12%

*Average annual total returns.

Annual Expense Ratio: Gross: 1.11% / Net: 0.85%. Per current prospectus. Domini has contractually agreed to cap Investor share expenses to not exceed 0.95% until 11/30/17, 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 7/31/17
ISSUER% OF PORTFOLIO
Fannie Mae TBA 30 YR (3.5% due 8/14/2047)7.7%
Fannie Mae (1.5% due 6/22/2020)3.0%
Freddie Mac TBA 30 YR (3.5% due 8/14/2047)2.9%
Fed Home LN Discount NT (0.01% due 8/23/2017)2.5%
Fed Home LN Discount NT (0.01% due 8/25/2017)2.5%
Fed Hm Ln PC Pool G08741 (3.0% due 1/1/2047)2.3%
Ginnie Mae II TBA 30 YR (3.0% due 8/21/2047)1.9%
Fannie Mae (5.625% due 7/15/2037)1.8%
Ginnie Mae II TBA 30 YR (3.5% due 8/21/2047)1.8%
Fannie Mae TBA 15 YR (3.0% due 8/16/2032)1.5%
TOTAL27.9%
Sector Weightings as of 6/30/17
SECTOR% OF PORTFOLIO
Mortgage Backed Securities55.1%
Investment Grade Credit30.7%
Commercial Mortgage Backed Securities7.1%
Bank Loans6.7%
U.S. Govt Agencies6.1%
High Yield Credit2.5%
Developed Non U.S. Dollar Denom.-0.1%
Tax Exempt Municipal2.3%
Asset Backed Securities1.0%
Cash & Cash Equivalents-11.6%
Total100%

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

 

Characteristics

All data as of 6/30/17 unless otherwise noted.

Portfolio Composition by Credit Quality1

Aaa 6.12%
Aa 67.97%
A 9.25%
Baa 16.65%
Ba 7.07%
B 1.72%
Below B 0.25%
Cash & Cash Offsets2 -11.59%
Not Rated3 2.55%

Portfolio Statistics

  DSBFX BUSA4
Total Number of Holdings5 386 9,348
Years to Worst 9.17 7.88
Effective Duration (years) 5.84 5.88
 
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. Bloomberg 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 Impact 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 June 30, 2017

  Apr
2017
May
2017
June
2017
2nd Qtr
2017
YTD One
Year
Three
Year*
Five
Year*
Ten
Year*
Since Inception
(6/1/00)*
DSBFX 0.89% 0.80% -0.09% 1.61% 2.42% 0.37% 2.12% 1.60% 3.67% 4.27%
BBUSA 0.77% 0.77% -0.10% 1.45% 2.28% -0.31% 2.48% 2.21% 4.48% 5.21%

Market Overview

Global bond markets generated strong gains in the second quarter as bouts of elevated political uncertainty kept a lid on government bond yields. In the U.S., political controversies—in particular, the ongoing investigation into Russia’s meddling in the 2016 presidential election—led to a short-lived dip in risk assets. Elections in France and the UK presented potential sources of volatility, but proved benign in the aftermath. Most currencies strengthened versus the U.S. dollar as market participants seemed doubtful that the Federal Reserve (Fed) would deliver on its projected tightening path.

Monetary policy developments among developed markets turned marginally more hawkish during the period. The Fed hiked rates in June, projected an additional hike later in 2017, and lied out a plan for tapering its asset purchases. Comments from Bank of England Governor Carney indicated rate hikes may be looming in the UK. However, even as it noted improved Eurozone growth, the European Central Bank (ECB) lowered its inflation forecasts, triggering speculation that it might postpone the tapering of asset purchases that had been expected later this year.

U.S. GDP growth moderated to 1.4% in the first quarter, but housing and labor market data remained robust during the second quarter. Economic momentum built in Europe as political risk faded, with continued strength in both the services and manufacturing sectors. In Japan, data pointed to domestically-driven growth, including declining unemployment, rising consumer prices, and improving business and consumer confidence. While China’s official Purchasing Managers’ Index (PMI) data improved, other indicators pointed to weaker growth, notably slowdowns in construction activity and property sales. Despite continued labor-market strength, inflation data across developed market economies remained subdued. Oil prices declined over the quarter, as rising U.S. shale production and growing supplies from Libya and Nigeria continued to offset OPEC production cuts.

 

Performance Commentary

The Fund’s Investor shares outperformed the Bloomberg Barclays U.S. Aggregate Bond Index for the second quarter, returning 1.61% vs. the benchmark’s 1.45% performance. The Fund’s exposure to mortgage-backed securities (MBS) and investment-grade credit represented the main contributors to outperformance, while it’s inflation positioning detracted from relative performance.

The Fund held an overweight to agency MBS, as its submanager, Wellington Management Company, saw evidence of lower interest-rate volatility and better visibility on the Fed’s balance-sheet intentions. A drop in bond-market volatility and increased clarity about the Fed’s plan to gradually taper its MBS reinvestments were generally positive for the sector, but the June rate rally had a greater influence on performance due to pre-payment fears. The Fund maintained an allocation to collateralized mortgage obligations (CMOs) and FNMA (Fannie Mae) Delegated Underwriting and Servicing (DUS) bonds, which the submanager believes have attractive income and convexity profiles. The Fund’s DUS exposure, as well as security selection within agency MBS, had a favorable impact on relative performance.

Based on attractive valuations, the Fund also held an overweight to high-quality commercial mortgage-backed securities (CMBS), which was also additive to relative performance. CMBS performance was positive despite negative headlines for retail companies, suggesting that the market has already largely priced in the weakness that has played out so far.

The Fund had an overall underweight position in investment-grade credit during the quarter, as the submanager believed there were better opportunities in other sectors. Within investment-grade corporate bonds, the Fund maintained overweight positions in U.S. financials, particularly large money center banks, and in taxable municipals. Despite concerns about prospects for retailers, particularly in the U.S., generally solid corporate earnings and continued demand for yield-producing assets supported credit markets and spreads tightened further. Overall, credit positioning was a positive contributor to relative results for the quarter, as a negative impact from an underweight to industrials was more than offset by positive impacts from security selection within the banking sector and the overweight to taxable municipals.

The submanager continued to favor bank loans based on attractive valuations and low default expectations, and maintained an allocation to BB-rated high-yield issuances. Additionally, the Fund’s submanager used high-yield derivatives as a source of liquidity and to manage overall portfolio risk. High yield generated strong gains, as generally supportive economic and earnings data outweighed elevated political uncertainty and lower oil prices. Bank loans also generated a positive total return. Tighter U.S. monetary policy may benefit bank loans more than fixed-rate sectors, as bank-loan coupons reset higher given their floating-rate nature. High-yield positioning, including exposure to bank loans and high-yield bonds, was beneficial to relative performance overall.

The primary detractor from relative performance was the Fund’s positioning within Government issues. The Fund was positioned for rising inflation expectations, as the submanager continued to believe the market was underpricing inflation expectations. However, this positioning detracted from relative performance amid growing doubts about fiscal stimulus prospects and three consecutive monthly readings of the U.S. Consumer Price Index (CPI) that were below markets expectations. The Fund also held modest opportunistic interest-rate positions that had a negative impact on relative performance.

 

Community & Environmental Impact

In the second quarter, securities Domini characterizes as “high impact” represented 28% of the Fund’s total portfolio. This allocation consists of holdings addressing the following issue areas:
  • Low-income multifamily housing
  • Economic development, public education and healthcare
  • Climate change adaptation and mitigation
During the second quarter, the Fund initiated a number of new investments in high-impact bonds, including a $185,000 investment in a green bond issued by Kaiser Foundation Hospitals, a nonprofit hospital focusing on preventative healthcare with financial assistance programs for low-income patients. Proceeds from this new green bond will be used to help Kaiser become “carbon net positive” by purchasing clean energy and carbon offsets; supporting sustainable agriculture by purchasing food from local producers that use sustainable practices; reducing waste production by recycling, reusing or composting hazardous waste; and conserving water. Kaiser also reports that it is striving to purchase products and materials that meet international standards for environmental management, and that it is pursuing new collaborations to reduce environmental risks to food sheds, watersheds and air basins supplying its member communities. Together with an investment in a previously issued general obligation bond, the Domini Impact Bond Fund had investments totaling more than $300,000 in Kaiser Foundation Hospital issuances as of June 30.

Making a Difference

The Domini Impact Bond seeks to have a positive impact across multiple key themes, including affordable housing, education and climate mitigation. In the second quarter, securities Domini characterizes as “high impact” represented 14.7% of the Fund’s total portfolio.

Domini Social Bond Fund Impact (Q2 2016)

The Domini Social Bond seeks to have a positive impact across multiple key themes, including affordable housing, education and climate mitigation. In the second quarter, securities Domini characterizes as “high impact” represented 14.7% of the Fund’s total portfolio, including the following two examples, which were added to the portfolio during the quarter.

Deepening our Impact – Green Bonds

Although our engagement work has historically focused on corporations, leveraging our rights as shareholders, we are also interested in opportunities to deepen the impact of the Domini Social Bond Fund through engagements with issuers and standard setters.  To date, these engagements have focused on green bonds, designed to finance projects and activities that address climate change or serve other environmentally beneficial purposes.

Policy on Firearms Manufacturers

Domini has a longstanding policy to avoid investment in the manufacturers of weapons, including military weapons and civilian firearms. This policy extends to firms that derive a significant percentage of revenues from the sale of firearms. We believe this industry is inherently damaging to society, due to the intersection between a particularly dangerous product and the extraordinary pressures to maximize profits and increase market share—pressures which are exponentially heightened for publicly traded companies. 

Bond Fund Standards

Fixed-income investments provide an important opportunity to create public goods, address a wide range of economic disparities in our society, and to fill certain capital gaps – funding needs that have often received insufficient attention from investors. We seek to address some of these disparities through the investments of the Domini Social Bond Fund, while simultaneously seeking to achieve competitive returns for our Fund’s investors.