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Domini Social Bond Fund ®

Fund Information

$11.59
Daily Price (NAV)
as of 08/30/2016
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 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 Global Investment Standards for further details.

Management

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.  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 7/31/16
YTD1 Yr3 Yr*5 Yr*10 Yr*Since Inception (6/1/00)*
DSBFX6.78%6.73%3.37%2.56%4.12%4.56%
BIA4.06%4.17%3.28%2.77%4.56%5.15%
Barclays U.S. Aggregate5.98%5.94%4.24%3.57%5.06%5.57%

Quarter-End Returns as of 6/30/16
YTD1 Yr3 Yr*5 Yr*10 Yr*Since Inception (6/1/00)*
DSBFX5.56%6.23%3.01%2.58%4.12%4.51%
BIA3.78%4.36%3.24%2.96%4.66%5.16%
Barclays U.S. Aggregate5.31%6.00%4.06%3.76%5.14%5.56%
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
2nd Qtr 20162.36%1.44%2.21%
1st Qtr 20163.13%2.31%3.03%
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 7/31/16
ISSUER% OF PORTFOLIO
Fannie Mae TBA 30 YR (3.5% due 8/16/2046)5.1%
Fannie Mae (1.5% due 6/22/2020)3.1%
Fannie Mae (5.625% due 7/15/2037)2.9%
Fannie Mae TBA 30 YR (3.0% due 8/16/2046)2.8%
Ginnie Mae II TBA 30 YR (3.0% due 8/23/2046)2.8%
Fannie Mae TBA 30 YR (3.5% due 9/14/2046)2.4%
Fannie Mae pool BC1171 (3.5% due 6/1/2046)1.6%
Federal Home Loan PC pool G08698 (3.5% due 3/1/2046)1.5%
Fannie Mae TBA 30 YR (3.0% due 9/14/2046)1.4%
Fannie Mae pool AM7067 (3.11% due 1/1/2021)1.3%
TOTAL24.7%
Sector Weightings as of 6/30/16
SECTOR% OF PORTFOLIO
Mortgage Backed Securities58.2%
Investment Grade Credit28.9%
U.S. Govt Agencies8.7%
Commercial Mortgage Backed Securities7.4%
Bank Loans7.0%
High Yield Credit1.4%
Tax Exempt Municipal0.3%
Asset Backed Securities0.3%
Developed Non U.S. Dollar Denom.-1.4%
Cash & Cash Equivalents-10.7%
Total100%

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

 

Characteristics

All data as of 6/30/2016 unless otherwise noted.

Portfolio Composition by Credit Quality1

Aaa 6.60%
Aa 64.88%
A 7.37%
Baa 18.75%
Ba 7.32%
B 0.88%
Below B 0.26%
Cash & Cash Offsets2 -10.73%
Not Rated3 4.69%

Portfolio Statistics

  DSBFX BUSA4
Avg. Effective Maturity (Yrs.) 8.61 7.35
Total Number of Holdings5 364 9,797
 
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 June 30, 2016

  April
2016
May
2016
June
2016
2nd Qtr
2016
YTD One
Year
Three
Year*
Five
Year*
Ten
Year*
Since Inception
(6/1/00)*
DSBFX 0.64% 0.19% 1.52% 2.36% 5.56% 6.23% 3.01% 2.58% 4.12% 4.51%
BIA 0.23% -0.03% 1.23% 1.44% 3.78% 4.36% 3.24% 2.96% 4.66% 5.16%
BUSA 0.38% 0.03% 1.80% 2.21% 5.31% 6.00% 4.06% 3.76% 5.14% 5.56%

Market Overview

Global fixed income markets experienced gains in the second quarter as central bank polices and concerns over Brexit drove government bond yields to fresh lows. In the first part of the quarter, rising commodity prices, market stabilization in China and accommodative global central bank monetary policy bolstered fixed-income market performance. However, by June, turmoil surrounding the UK’s proposed withdrawal from the European Union (EU) prompted a flight to safety by investors amid a spike in global financial market volatility. UK and European equity and credit markets saw the worst losses.
 
Data released in the US generally helped markets move higher. Consumption increased and investor confidence was sustained from the first quarter. The US housing sector held to a positive trajectory, supported by strong sales and continued year-over-year home price increases. However, some economic releases pointed to persistent softness across the manufacturing sector. The labor market appeared to lose some steam in the second quarter as payrolls grew much less than market expectations in May. The disappointing payroll numbers were offset by record low jobless claims and further declines in the unemployment rate. Inflation had little effect on markets, as the Personal Consumption Expenditures (PCE) index remained below the Fed’s 2% target. 

In June, the Fed chose not to change federal interest rates due to uncertainty over the state of the global economy as well as a reluctance to hike rates in the face of the UK “Brexit” vote. 

Performance Commentary

The Fund’s Investor shares outperformed the Barclays U.S. Aggregate Bond Index for the second quarter, returning 2.36% vs. the benchmark’s 2.21% performance.

  • Additive to Relative Performance:  Positioning to Mortgage-Backed Securities, allocation to bank loans and security selection within investment grade corporates.
  • Primary Detractor from Relative Performance:  Inflation positioning. 
In the second quarter, the Fund held a modest overweight allocation to investment-grade credit obligations and continued to favor US financials—particularly large money center banks. The Fund also held an overweight allocation to taxable municipal issuances. Investment-grade credit outperformed, while financials underperformed utilities and industrials in the wake of the UK’s vote to exit the EU. Credit positioning, supported by an overweight allocation to taxable municipals and favorable security selection within the banking sector, was additive to relative performance.
 
The Fund was overweight to agency mortgage-backed securities and continued to favor Fannie Mae Delegated Underwriting and Servicing (DUS) bonds, where the underlying collateral is multi-family family housing for lower-income areas. Agency mortgage-backed securities outperformed on an excess return basis whereas sectors with the highest exposure to refinancing underperformed. Wellington Management, the Fund’s financial submanager, also favored Credit Risk Transfer deals (CRTs) and securitized debt linked to residential mortgages, as the US housing market continued to improve from the first quarter. The Fund’s allocation to both agency mortgage-backed securities and CRT deals was additive to relative performance. 
 
Relative performance also benefited from an overweight to high-quality Commercial Mortgage-Backed Securities (CMBS), which generally performed well amid positive commercial real estate fundamentals and attractive valuations. Higher quality issues in the Fund’s allocation to CMBS generated positive excess returns, and positioning in high-quality CMBS was additive to relative performance.
 
Wellington Management continued from the first quarter to favor bank loans due to attractive valuations and low default expectations, and maintained a modest allocation to BB-rated high-yield debt. High-yield issues rebounded strongly from the first quarter, aided by stable US economic data and the rally in oil prices, and the bank loan sector also generated a positive total return amid the improved market tone in April and May. The Fund’s allocation to bank loans was additive to relative performance. While the Fund’s small allocation to non-US dollar denominated debt ultimately detracted from relative performance, it’s overweight positioning in taxable municipal issuances was additive to relative performance. 
 

Throughout the second quarter, Wellington Management positioned the portfolio for rising inflation expectations, believing that the Treasury Inflation-Protected Securities (TIPS) market was pricing in unrealistically low inflation assumptions over the longer-term. However, inflation expectations declined as a result of global market volatility, and inflation positioning was a detractor from relative performance. The Fund held modest opportunistic interest rate positions, which ultimately had a small positive impact on fund performance.

Community & Environmental Impact

The Fund 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. 
 
Indiana Finance Authority 
 
Within the last 50 years, Indiana’s supply of inpatient psychiatric beds declined significantly from 6,000 to 800 in 13 state-operated facilities for patients with mental health and developmental disabilities. Proceeds from this bond will finance construction of a new public mental health care facility, the Neuro-Diagnostic Institute and Advanced Treatment Center, for medically underserved populations in the state. The new facility will be Indiana’s flagship mental health facility for those with mental illness and addictions.
 
Massachusetts General Obligation Green Bond 
 
Proceeds from this bond are used for climate adaptation and mitigation, including storm water management, energy efficiency and conservation in state buildings, open space protection, habitat restoration and preservation, and environmental remediation and river revitalization projects throughout Massachusetts. In 2013, Massachusetts became the first state to issue a green bond, and has provided increasingly transparent reports each year to allow investors to measure the environmental impact of these issuances. 

Making a Difference

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.

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.