Voya Credit Income Fund Quarterly Commentary - 3Q23

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Actively managed, ultra-short duration floating-rate income strategy that invests primarily in privately syndicated, below investment-grade senior secured corporate loans.

Key Takeaways

  • Despite the weaker tone in broader markets, the economic backdrop benefited higher beta sectors in fixed income.
  • Class I shares of the Fund underperformed the benchmark on a net asset value (NAV) basis, the 50% Bloomberg High Yield Bond—2% Issuer Constrained Composite Index/ 50% Morningstar LSTA US Leveraged Loan Index (the benchmark) during the quarter.
  • While the likelihood of a soft landing has increased in recent months, there remains no shortage of economic, political and geopolitical issues that could derail such a benign outcome

Portfolio Review

The third quarter of 2023 contained an abundance of strong data, as the prospect of a soft landing gained credibility. Inflation continued to trend in the right direction, as Core Personal Consumption Expenditures Price Index, which at its peak was running at a year over year rate of 5.6%, fell to 3.8% by the end of August. Meanwhile, the economy continued to add jobs at a fast pace. The combination of falling inflation and a strong labor market allowed consumers to continue spending, creating a tailwind for gross domestic product growth. Maintaining a data dependent stance, the Fed responded to this better-than-expected data by hiking rates at their July meeting. In September, the U.S. Federal Reserve kept rates unchanged, however their updated dot plot projection reinforced a “higher for longer” message. This led to a broad sell-off across rates, leading to disappointing returns across both fixed income and equities.

Despite the weaker tone in broader markets, the economic backdrop benefited higher beta sectors in fixed income. Spreads held well in both loans and high yield (HY) bonds, with the difference in total returns driven by the underlying rate move weighing on bond returns. The Morningstar® LSTA ® US Leveraged Loan Index returned 3.46%, while the Bloomberg U.S. High Yield 2% Issuer Constrained Index gained 0.46%. Loans continue to benefit from a strong carry and limited exposure to rate volatility, with the year-to-date return of 10.16% representing the best return since the Global Financial Crisis. In the HY market, credit spreads tightened in July before widening in September to roughly the same level to start the quarter at 394 basis points (bp) on an option-adjusted spread (OAS) basis. The down-in-quality trade was evident in both markets, as risk appetite remained strong despite continued macro uncertainties. BB, B and CCC rated loans returned 2.21%, 3.85% and 6.05%, respectively, while BB-, B-, and CCC-rated bonds delivered respective returns of –0.40%, 0.84%, and 2.51%. New-issue activity increased across the leveraged finance space ($118 billion versus $103 billion last quarter), primarily due to an uptick in loan issuance. Total volume in the quarter for the loan segment was $76.3 billion, while HY was subdued at $41.1 billion. While the use of proceeds largely remained opportunistic in nature, leveraged buyout and M&A supply saw a notable uptick in the loan market at $27.8 billion (five-quarter high).

Class I shares of the Fund underperformed the benchmark on a NAV basis. While an overweight allocation to loans benefited the Fund, performance was negatively impacted by a few idiosyncratic challenges during the quarter. Negative performance drivers in the period included exposure to Save-A-Lot (weak earnings), holdings in the cable space (primarily due to Charter Communications Operating, LLC ) and exposure to Commscope, Inc. within the technology sector, as the company posted weak quarterly earnings. Meanwhile, contributors included select software related names (Imperva, Inc., Veritas Technologies Corp. and Ivanti Software, Inc.) that outperformed the broader market due to idiosyncratic reasons and exposure within independent energy and chemicals that benefited from stronger commodity prices.

Current Strategy and Outlook

The macro environment remains uncertain. The likelihood of a soft landing has increased in recent months, but there remains no shortage of economic, political and geopolitical issues that could derail such a benign outcome. On the positive side, a strong job market, rising wages, declining inflation and generally solid consumer and corporate balance sheets support further economic momentum. Negatives of note include higher interest rates, higher oil and gasoline prices, a sluggish recovery in China and political dysfunction in Washington. In general, we are closely monitoring consumer health and margin compression at the corporate level, while a more active new-issue calendar has allowed us to look for opportunities in the primary market. We expect dispersion in performance among borrowers to continue and pockets of stress to emerge as the cycle matures. As such, our focus will be on security selection and finding pockets of value in an increasingly dispersed market.

Holdings Detail

Companies mentioned in this report – percentage of Fund investments, as of 09/30/23: Save-A-Lot 0.49%, Charter Communications Operating, LLC 0.76%, Commscope, Inc. 0.28%, Imperva, Inc. 0.33%, Veritas Technologies Corp. 0.50%, Ivanti Software, Inc. 0.72%; 0% indicates that the security is no longer in the portfolio. Portfolio holdings are subject to daily change.


The Morningstar® LSTA ® US Leveraged Loan index is an unmanaged total return index that captures accrued interest, repayments, and market value changes. The index does not reflect fees, brokerage commissions, taxes or other expenses of investing. Investors cannot invest directly in an Index.
Bloomberg U.S. High Yield 2% Issuer Constrained Index is an unmanaged index that covers U.S. corporate, fixed-rate, non-investment grade debt with at least one year to maturity and at least $150 million in par outstanding. Index weights for each issuer are capped at 2%.
Principal Risks: All investing involves risks of fluctuating prices and the uncertainties of rates of return and yield. Investment Risks: The Fund invests primarily in below investment grade, floating rate senior loans (also known as “high yield” or “junk” instruments), which are subject to greater levels of liquidity, credit, and other risks than are investment grade instruments. There is a limited secondary market for floating rate loans, which may limit the Fund’s ability to sell a loan in a timely fashion or at a favorable price. If a loan is illiquid, the value of the loan may be negatively impacted and the manager may not be able to sell the loan in order to meet redemption needs or other portfolio cash requirements. The value of loans in the Fund could be negatively impacted by adverse economic or market conditions and by the failure of borrowers to repay principal or interest. A decrease in demand for loans may adversely affect the value of the Fund’s investments, causing the Fund’s net asset value to fall. Because of the limited market for floating rate senior loans, it may be difficult to value loans in the Fund on a daily basis. The actual price the Fund receives upon the sale of a loan could differ significantly from the value assigned to it in the Fund. The Fund may invest in foreign instruments, which may present increased market, liquidity, currency, interest rate, political, information, and other risks. These risks may be greater in the case of emerging market loans. Although interest rates for floating rate senior loans typically reset periodically, changes in market interest rates may impact the valuation of loans in the portfolio. In the case of early prepayment of loans in the Fund, the Fund may realize proceeds from the repayment that are less than the valuation assigned to the loan by the Fund. In the case of extensions of payment periods by borrowers on loans in the Fund, the valuation of the loans may be reduced. The Fund may also invest in other investment companies and will pay a proportional share of the expenses of the other investment company. Derivative Instruments: Derivative instruments are subject to a number of risks, including the risk of changes in the market price of the underlying securities, credit risk with respect to the counterparty, risk of loss due to changes in interest rates and liquidity risk. The use of certain derivatives may also have a leveraging effect which may increase the volatility of the Fund and reduce its returns. Other investment risks of the Fund include, but are not limited to: Equity Securities, Foreign Investments, High-Yield Securities, Leverage, Liquidity, Prepayment and Extension. Investors should consult the Fund’s prospectus and statement of additional information for a more detailed discussion of the Fund’s risks. An investment in the Fund is not a bank deposit and is not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults (5) changes in laws and regulations and (6) changes in the policies of governments and/or regulatory authorities. Past performance is no guarantee of future results.
The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Portfolio holdings are fluid and are subject to daily change based on market conditions and other factors.
The Fund discussed may be available to you as part of your employer sponsored retirement plan. There may be additional plan level fees resulting in personal performance to vary from stated performance. Please call your benefits office for more information.
Performance Attribution: During the period from January 1, 2017 to July 31, 2020, an unaffiliated data provider, which is used by the Funds to identify individual senior loans and groups of senior loans that detracted from or contributed to portfolio performance on an absolute or relative basis (commonly known as “attribution analysis”), provided the Funds with inaccurate data. As a result, the attribution analysis used to explain and analyze a portfolio’s performance against a particular benchmark was inaccurate in some instances during the period. Importantly, the Funds’ actual performance information and performance comparison to their respective benchmark which appeared in various Fund commentaries during this period were correct and were not impacted by the inaccurate data. The data provider has identified and corrected the issue that caused the transmission of inaccurate information, and correct information is reflected in attribution analysis used in commentaries prepared after September 30, 2020.performance. Please call your benefits office for more information.
The Standard & Poor’s rating scale is as follows, from excellent (high grade) to poor (including default): AAA to D, with intermediate ratings offered at each level between AA and CCC. Anything lower than a BBB- rating is considered a non-investment grade or junk bond. Any security that is not rated by Standard & Poor’s is placed in the NR (Not Rated) category.