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Domini Impact Bond Fund sm

Fund Information

$11.14
Daily Price (NAV)
as of 12/02/2016
Symbol DSBFX
Daily NAV Change $0.03 (0.27%)

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.  

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 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 10/31/16
YTD1 Yr3 Yr*5 Yr*10 Yr*Since Inception (6/1/00)*
DSBFX5.84%5.33%2.68%2.03%3.78%4.44%
Bloomberg Barclays U.S. Aggregate4.99%4.37%3.48%2.90%4.64%5.43%

Quarter-End Returns as of 9/30/16
YTD1 Yr3 Yr*5 Yr*10 Yr*Since Inception (6/1/00)*
DSBFX6.88%6.33%3.21%2.20%3.93%4.52%
Bloomberg Barclays U.S. Aggregate5.80%5.19%4.03%3.08%4.79%5.50%
Calendar Year Returns
DSBFXBBUSA
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
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: 1.19% / Net: 0.93%. 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 10/31/16
ISSUER% OF PORTFOLIO
Fannie Mae TBA 30 YR (3.5% due 11/14/2046)5.2%
Fannie Mae (5.625% due 7/15/2037)3.4%
Fannie Mae (1.5% due 6/22/2020)3.2%
Freddie Mac TBA 30 YR (3.5% due 11/14/2046)3.2%
Fannie Mae TBA 15 YR (2.5% due 11/17/2031)2.5%
Ginnie Mae II TBA 30 YR (3.0% due 11/21/2046)2.2%
Fannie Mae TBA 30 YR (3.0% due 11/14/2046)2.2%
Fannie Mae TBA 30 YR (3.0% due 12/13/2046)2.1%
Fannie Mae TBA 15 YR (3.0% due 11/17/2031)1.6%
Fannie Mae pool BC1171 (3.5% due 6/1/2046)1.6%
TOTAL27.1%
Sector Weightings as of 9/30/16
SECTOR% OF PORTFOLIO
Mortgage Backed Securities56.7%
Investment Grade Credit31.8%
Commercial Mortgage Backed Securities7.9%
U.S. Govt Agencies7.4%
Bank Loans7.0%
High Yield Credit3.1%
Developed Non U.S. Dollar Denom.0.7%
Tax Exempt Municipal0.6%
Asset Backed Securities0.4%
Cash & Cash Equivalents-15.7%
Total100%

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

 

Characteristics

All data as of 9/30/2016 unless otherwise noted.

Portfolio Composition by Credit Quality1

Aaa 7.40%
Aa 66.91%
A 7.53%
Baa 21.67%
Ba 6.51%
B 3.42%
Below B 0.25%
Cash & Cash Offsets2 -15.66%
Not Rated3 1.97%

Portfolio Statistics

  DSBFX BUSA4
Avg. Effective Maturity (Yrs.) 9.15 7.58
Total Number of Holdings5 341 9,908
 
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 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 September 30, 2016

  July
2016
Aug
2016
Sep
2016
3rd Qtr
2016
YTD One
Year
Three
Year*
Five
Year*
Ten
Year*
Since Inception
(6/1/00)*
DSBFX 1.16% 0.10% -0.01% 1.25% 6.88% 6.33% 3.21% 2.20% 3.93% 4.52%
BBUSA 0.63% -0.11% -0.06% 0.46% 5.80% 5.19% 4.03% 3.08% 4.79% 5.50%

Market Overview

The third quarter saw renewed investor confidence and a decrease in volatility across bond markets as investors moved past fears over a Brexit vote shake up. Credit sectors experienced an impressive rebound, more than fully recovering from a post-Brexit decline, and expectations of favorable policy accommodation in the face of stale global growth also bolstered fixed income market momentum.
 
Central banks across the globe pursued a number of different policy approaches in the third quarter. Acting to counter slowing growth and disinflationary forces, the Reserve Bank of Australia and the Reserve Bank of New Zealand both slashed rates to record lows, and the Bank of England (BOE) rolled out a stimulus package aimed at preventing recession in the wake of the Brexit vote. To date, data releases show that the Brexit vote appears to have had little effect on the UK economy. Notably, the Bank of Japan (BOJ) made important changes to its policy framework, aiming now to keep yield on its 10-year government bond near zero. The BOJ has also introduced a commitment to continue expanding the monetary base until core inflation overshoots its 2% per annum goal.
 
In contrast to the BOE’s initiatives, the European Central Bank chose not to alter its stimulus program, opting out of making a firm commitment to further expand its bond-buying program. In the US, investors remained skeptical about a Federal Reserve Bureau (Fed) interest rate hike. The Fed’s decision at its September meeting to leave rates unchanged was a close call, with three dissenting members calling for a rate increase. Signals from policy makers indicate that a rate-hike before year end is likely, followed by fewer increases in the coming years in light of diminished long-run US growth expectations.
 

Fund Performance

The Fund’s Investor shares outperformed the Bloomberg Barclays U.S. Aggregate Bond Index for the second quarter, returning 1.25% vs. the benchmark’s 0.46% performance.

  • Main contributor to relative performance: Positioning within securitized sectors (non-agency RMBS, agency MBS and CMBS)
  • Also additive: Inflation positioning, exposure to bank loans, duration/yield curve positioning
During the quarter, Wellington Management maintained modest opportunistic interest rate positions, which benefited performance. The Fund’s submanager positioned the portfolio for rising inflation expectations using Consumer Price Index (CPI) swaps, believing the market was pricing in unrealistically low inflation assumptions over the longer-term. After falling in late June in the wake of the Brexit vote, inflation expectations rebounded in July and continued to be positive in September despite the Fed’s more hawkish tone. Overall, the Fund’s inflation positioning was additive to relative performance.
 
The Fund maintained a neutral to slight underweight to investment grade credit and continued to favor US financials, particularly large money center banks. During the third quarter, the investment grade credit sector outperformed on an excess return basis, and corporate spreads grew narrower as the Brexit storm blew over and market volatility remained in check. The Fund’s overweight to and security selection within the banking subsector resulted in credit positioning having a positive effect on relative performance.
 
Wellington Management held an overweight position in mortgage-backed securities based on attractive valuations and continued to favor Fannie Mae Delegated Underwriting and Servicing (DUS) bonds. Agency mortgage-backed securities outperformed on an excess return basis, aided by strong demand from banks and overseas investors. Overall, the portfolio’s overweight to agency mortgage-backed securities pass-throughs, as well as its exposure to Fannie Mae DUS issuances was additive to relative performance. The Fund’s submanager also favored agency debt tied to residential mortgages (Credit Risk Transfer deals, or, “CRTs”) in light of an improving domestic housing market. Performance in agency CRT markets was also robust due to a number of positive measures taken by rating agencies. The Fund’s allocation to agency CRT deals contributed positively to relative performance. 
 
During the quarter, positioning in high quality corporate mortgage-backed securities (CMBS) was additive to relative performance as the CMBS market generated positive returns in July and August. Wellington Management continued to favor bank loans in the portfolio based on attractive valuations and low default expectations. Additionally, the portfolio management team employed high yield derivatives as a source of liquidity and to manage overall portfolio risk. High yield had a strong third quarter, led by lower quality issues, and the bank loan sector also generated a positive total return amid stable fundamentals. Monthly bank loan mutual fund flows turned positive for the first time in 2016. Overall, high yield positioning was beneficial to overall results; however, positive results from exposure to bank loans and BB rated high yield bonds was partially offset by the portfolio’s allocation to derivatives. 
 
The Fund maintained an overweight to taxable municipals—particularly select healthcare issuers—which was additive to relative performance. 
 

Community & Environmental Impact

In the third quarter, securities Domini characterizes as “high impact” represented 24% of the Fund’s total portfolio. This allocation within the portfolio consisted of holdings addressing the following issue areas:
  • Low-income multifamily housing
  • Economic development, public education and healthcare
  • Climate change adaptation and mitigation
The Fund has a commitment to assisting under-served borrowers gain access to capital. In the third quarter, we held investments of over $23 million (more than 16% of the Fund’s portfolio) to finance low-income housing through Federal National Mortgage Association (FNMA) Delegated Underwriting and Servicing (DUS) mortgage-backed security bonds. These bonds are backed by multifamily housing loans for new construction or refinancing of more than 3,000 units for families with incomes below 50% of the median area income.
 
The Fund also has a focus on investing in securities that help create public goods. In the third quarter, the Fund held a municipal bond to finance economic development in Detroit. Forty percent of Detroit’s population lives in poverty. The city also has a dedicated urban planner focused on community sustainability.  

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.