Voya Floating Rate Fund Quarterly Commentary - 2Q25
Actively managed, ultra-short duration floating-rate income strategy that invests primarily in privately syndicated, below investment grade senior secured corporate loans.
Portfolio review
The second quarter of 2025 opened with a surge in global trade tensions as the U.S. implemented sweeping tariffs on a broad range of trading partners. The move branded “Liberation Day,” caught markets off guard with tariff rates significantly higher than expected. Markets reacted swiftly and negatively: equities dropped into correction territory, credit spreads widened sharply, and U.S. Treasuries, which had been rallying on expectations of slower growth, sold off as investor sentiment toward U.S. assets deteriorated. Just days later, the U.S. administration announced a temporary reprieve, significantly reducing tariff rates to allow for negotiations. This reprieve, set to expire on July 9, 2025, helped stabilize markets. Although uncertainty remained, the easing of trade tensions allowed risk assets to recover gradually through the remainder of the quarter. Economic data released during the quarter painted a mixed picture, with 1Q25 gross domestic product (GDP) coming in at –0.5%, largely driven by the surge in imports, while the labor market remained resilient with solid nonfarm payrolls reports. Inflation continued its gradual descent but remained above the U.S. Federal Reserve’s 2% target. Against this backdrop, the Fed held interest rates steady throughout the quarter.
Secondary loan prices, as represented by the weighted average bid price of the Index, finished the quarter 76 basis points (bp) higher at 97.07. After falling below 96 in April post-the Liberation Day tariff sell-off, prices quickly rebounded and finished the quarter on a strong note. The notable rally in prices combined with still elevated levels of coupon income resulted in a quarterly return of 2.32% for the Index, which was the largest gain since 1Q 2024. Dispersion across ratings was fairly limited this quarter, although B rated loans outperformed the broad Index and other segments at 2.46%. BB and CCC rated loans registered gains of 2.13% and 2.31%, respectively. On a YTD basis, performance remains in favor of BB rated loans, as they fared better during April’s heightened volatility.
In the primary market, new-issue activity underwhelmed during the quarter, as escalating tariff uncertainty and geopolitical risks weighed on new deal flow. Total supply ex-repricings was just $79.6 billion, the lowest reading since 3Q 2023, with both refinancings and merger and acquisition (M&A) deals seeing meaningful declines compared to the prior quarter. Investor demand remained buoyed by collateralized loan obligation (CLO) issuance, as managers priced over $51 billion during the quarter, bringing the YTD tally to a robust $100 billion. Retail loan funds, as tracked by Morningstar, experienced a notable outflow of $8.6 billion during the quarter, most of which occurred at the peak of April’s sell-off, as flows were net positive in May and June.
On a NAV basis, Class I shares of the Fund underperformed the Index during the second quarter. Please note that effective August 8, 2025, Voya Floating Rate Fund (Fund) is merging into Voya Short Duration High Income Fund. Underperformance for the quarter was driven by selection in software and building products, as well as holding cash in a period of rising loan prices following the sale of positions to prepare for the merger. Half-way through the quarter, the Fund began selling out of loans and was primarily in cash by end of the quarter. Positive contributions for the quarter included the avoidance of select underperforming credits, mostly within the CCC ratings cohort.
Current strategy and outlook
Looking ahead, we are continuing to pay close attention to the evolving developments on the policy and macro front. The top macro concerns are the effects of the tariffs on earnings, pullback in consumer and corporate sentiment and potential recessionary impacts. Despite these concerns, we believe the macro environment still remains generally supportive for loan borrowers, with only a modest slowdown expected and a recession unlikely. Fundamental factors remain in decent shape, although could come under pressure if growth slows meaningfully despite the Fed providing some relief with rate cuts. The overall technical backdrop should remain supportive for the balance of the year. CLO issuance is expected to continue at a strong clip, while M&A activity will likely only modestly increase, which should underpin technical factors and keep the ongoing supply shortage firmly in place.
From a sector standpoint, we remain cautious around cyclical exposures and industries directly impacted by tariffs. Our greater concern is not with tariffs, but with secondary effects, such as a potential pullback in businesses or consumer spending. As a result, we are focused on industries that we believe are better positioned to withstand broader economic pressure. Across credit quality, we continue to maintain our high single-B profile, with an underweight in BB rated loans and the “right tail” of the market.
Holdings detail
Companies mentioned in this report-percentage of Fund investments, as of 6/30/2025: 0% indicates that the security is no longer in the portfolio. Portfolio holdings are subjected to change on a daily basis.
Key Takeaways
The second quarter of 2025 opened with a surge in global trade tensions as the U.S. implemented sweeping tariffs on a broad range of trading partners.
The Fund Class I shares underperformed the Index on a net asset value (NAV) basis. .
Looking ahead, we are continuing to pay close attention to the evolving developments on the policy and macro front.