A rules-based strategy designed to exploit market inefficiencies in a disciplined systematic manner.
Equal Positions in the 100 Largest S&P 500 Companies
- For the quarter ended September 30, 2022, the Voya Corporate Leaders 100 Fund (the Fund) underperformed its benchmark, the S&P 500 Index (the Index).
- During the quarter, the Fund continued to follow its strict rules-based investment approach.
- At the beginning of the quarter, the Fund held equal-weighted positions in the stocks of the S&P 100 Index (implying that each holding represented about 1% of the portfolio).
- Over the course of the quarter, if the value of a security increased by more than 50%,* the position size was reduced to 1%, and if the value of a security decreased by more than 30%,* the position was eliminated.
Current strategy and outlook
Though all market capitalization segments declined, small cap stocks generally fared better than large or mid-cap stocks. Growth styles fared better than value styles across the capitalization spectrum. Quarterly S&P 500 Index industry sector results were mixed. Consumer discretionary and energy had positive returns, whereas the rest were negative. Rising interest rates pushed down prices — and thus, total returns — of US bonds, which still fared better than non-US bonds.
We believe an economic downturn resulting from Federal Reserve action looks increasingly likely. Even after a string of aggressive rate increases, the Fed is expected to continue raising rates at least into early 2023. Inflation appears to have peaked, however, and should decline markedly into next year, giving the Fed room to pause its tightening measures and perhaps even lower rates if employment data deteriorate. In the meantime, higher US rates are having negative consequences across the globe, creating knock-on effects as many other central banks also raise rates.
It is possible that these potential outcomes already are reflected in current market prices. According to research firm FactSet, Wall Street analysts have revised third quarter earnings estimates down by a larger margin than in recent quarters; yet at the same time, companies have been more positive in their third quarter earnings guidance than they have been in the past two quarters. In our view, investors are likely to favor those companies that can make good on their positive guidance.
Over the reporting period, stock selection in the health care and communication services sectors contributed the most to performance. In addition, the underweight and selection in the information technology sector contributed. At the individual stock level, underweight positions in Amazon.com, Inc., Apple Inc. and Tesla Inc. were among the key contributors.
By contrast, the underweight allocation to the energy sector and overweight allocation to financials detracted from performance. Among the largest individual detractors for the period were the underweight in Netflix, Inc. and overweights to PayPal Holdings, Inc. and Ford Motor Company.
As of the end of the reporting period, the Fund’s largest sector overweight was to the industrials sector, while the largest sector underweight was information technology. Sector exposures are purely a function of the Fund’s rules-based investment discipline and are not actively managed.
Companies mentioned in this report – percentage of Fund investments, as of 09/30/22 Netflix, Inc. 1.42%, Microsoft Corp. 0.96%, PayPal Holdings, Inc. 1.29%, Apple Inc. 1.06%, Charter Communications, Inc. 0% and FedEx Corp. 0%; 0% indicates that the security is no longer in the Fund. Portfolio holdings are subject to daily change.
*If a security is underperforming the S&P 500® Index and the S&P 500® Index is positive on an intra-quarter basis, the security will typically be sold when it declines by 30% or more, irrespective of the percentage difference versus the S&P 500® Index. If a security is underperforming the S&P 500® Index and the S&P 500® Index is negative on an intra-quarter basis, the security will typically be sold when it underperforms the S&P 500® Index by 30 percentage points or more. This change went into effect on 5/18/20.