A rules-based strategy designed to exploit market inefficiencies in a disciplined systematic manner.
For the quarter ended September 30, 2023, the Voya Corporate Leaders 100 Fund (the Fund) outperformed its benchmark, the S&P 500 Index (the Index) on net asset value (NAV) basis.
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
U.S. equity markets reversed course during the third quarter, weighed down by fears of interest rates remaining higher for longer. The S&P 500 Index fell by –3.27% for the quarter. Energy and information technology stocks led while utilities and consumer staples lagged. Growth stocks modestly outperformed value stocks during the quarter, and large caps beat small caps.
The U.S. bond market remained choppy during the quarter. The Bloomberg U.S. Aggregate Bond Index lost –3.23%, while a surprisingly resilient U.S. economy pushed the 10-year U.S. Treasury yield from 3.86% at the beginning of the quarter to 4.59% by quarter-end. In July, U.S. Federal Reserve raised rates by 25 basis points, bringing the Fed funds rate to a range of 5.25–5.50%. Rates were held steady at the September meeting, and Fed Chair Powell’s remarks maintained a hawkish tone as he reiterated the central bank’s strong commitment to returning inflation to its 2% target.
The U.S. economy has remained resilient as have corporate earnings, fueling the debate of a hard versus soft landing. We still believe there may be greater volatility to come given uncertainty over Fed rate policy through the end of the year; mixed business sentiment and slowing economic growth; and whether a recession will actually happen, and if so, the duration and depth. The real story has been the resilience of corporate earnings and rise in equity valuations as interest rates begin to normalize. Using price-to-earnings (P/E) ratio as a proxy, valuations for the S&P 500 Index ended 2022 well below 2019 levels. However, despite elevated rates and tightening financial conditions in the first half of the year, valuations have expanded modestly. P/E ratios are still below 2019 levels, and we believe earnings expectations are reasonable, but this could change as we enter 2024 depending on the state of the U.S. economy.
Over the reporting period, the underweight and stock selection in the information technology sector contributed the most to performance. Secondarily, selection in the health care sector contributed. At the individual stock level, underweight positions in Apple Inc. and Microsoft Corp. as well as the overweight position in Charter Communications, Inc. were among the key contributors.
By contrast, stock selection in the communication services sector and the underweight in energy detracted. Among the largest individual detractors for the period were the not owning Alphabet Inc., and overweight positions in Walgreens Boots Alliance, Inc. as well as RTX Corp.
As of the end of the reporting period, the Fund’s largest sector overweight was to the financials sector, while the largest sector underweight was information technology. Sector exposures are purely a function of the strategy’s rules-based investment discipline and are not actively managed.
Companies mentioned in this report – percentage of Fund investments, as of 09/30/23: Apple Inc. 0.92%, Microsoft Corp. 0.96%, Charter Communications, Inc. 1.23%, Alphabet Inc. 1.11%, Walgreens Boots Alliance, Inc. 0% and RTX Corp. 0.75% ; 0% indicates that the security is no longer in the Fund. Portfolio holdings are subject to daily change.