A steady, balanced and long-term approach to U.S. blue-chips
For the quarter, the Trust outperformed its benchmark, the S&P 500 Total Return index (the “index”).
The U.S. and non-U.S. financial markets sustained sizeable losses in the second quarter — including commodities, which until June had posted positive returns. With losses of more than 20%, large capitalization growth and technology stocks sank deeper into bear market territory. The S&P 500 index, a broad market gauge, edged toward a bear market cliff but didn’t fall over it. Globally, bonds also sustained losses as persistent high inflation, and attempts to control it by raising interest rates, sent yields up and prices down. The only assets to post positive returns were short maturity debt instruments such as 1–3 month U.S. Treasury bills.
The outperformance during the quarter was driven by the overweight and stock selection in the energy sector as well as an underweight in the consumer discretionary sector and lack of exposure to the information technology sector. Key contributors included overweights to Exxon Mobil Corporation and Marathon Petroleum Corporation, and not owning Amazon.com, Inc.
Conversely, stock selection in industrials and lack of exposure to the health care sector detracted from performance. Among key detractors for the period included the overweights to Union Pacific Corporation and Berkshire Hathaway Inc., and not owning UnitedHealth Group Incorporated.
As of the end of the reporting period the strategy’s largest sector overweights included the industrials and energy sectors, while the largest underweight sectors were consumer discretionary and communication services; the Trust does not currently hold positions within the information technology, healthcare and real estate sectors. Sector exposures are purely a function of the strategy’s quantitative investment discipline, however, and are not actively managed.
Outlook and Current Strategy
Russia’s war on Ukraine continued to warp market dynamics, pushing a surge of inflation. In response, the Federal Reserve (the “Fed”) pivoted to raising interest rates aggressively. The Fed policy response prompted worries that rate hikes would overshoot the need to curb inflation and cause a recession. Economic data began to show signs of slowdown in manufacturing and job growth, though prices continued to climb. On average, the number of S&P 500 companies issuing negative earnings per share (EPS) guidance for calendar year 2022 increased, though that number was about the middle of the range for the last ten years. Investors responded to these signals with accelerated stock selling, which pressured prices lower.
At some point, declining financial markets, higher interest rates and a stronger U.S. dollar ought to tighten financial conditions enough to curb inflation and give the Fed room to moderate its policy stance. Hopefully, this would allow the economy to stabilize without slipping into recession. Also, S&P 500 EPS guidance varies by sector: the highest numbers of companies issuing negative guidance occur within the health care, industrial and utility sectors; on the other hand, the highest numbers issuing positive guidance occur within the information technology, health care and industrial sectors. These variations suggest there may be room for equity markets to stabilize as inflation and monetary policy moderate.
The Voya Corporate Leaders Trust was created in 1935 with the objective of seeking long-term capital growth and income through investment, generally in an equal number of shares of common stock of a fixed list of American blue-chip corporations. The Trust’s portfolio investments are not actively managed. Stocks have only been added when corporate actions, such as mergers or spin-offs replace one of the original 30 companies. It currently holds investments in 20 American blue-chip corporations favoring the industrials, energy and materials sectors.
Companies mentioned in this report – percentage of portfolio investments, as of 06/30/22: Exxon Mobil Corporation 10.22%, Marathon Petroleum Corporation 7.53%, Amazon.com, Inc. 0%, Union Pacific Corporation 40.71%, Berkshire Hathaway Inc. 13.25% and UnitedHealth Group Incorporated. 0%; 0% indicates that the security is no longer in the portfolio. Portfolio holdings are subject to change on a daily basis.