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Voya Floating Rate Fund Quarterly Commentary - 4Q24

Key Takeaways

The fourth quarter of 2024 was characterized by resilient labor market dynamics, strong economic growth and sticky inflation. 

On a net asset value (NAV) basis, Class I shares of the Fund outperformed the Index. 

Looking forward, we expect economic growth to remain resilient.

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 fourth quarter of 2024 was characterized by resilient labor market dynamics, strong economic growth and sticky inflation. The impact on fixed income performance was mixed, with yields rising and credit spreads tightening, leading to modestly negative returns for most fixed income sectors. However, loans remained resilient, finishing the quarter strong with a positive return of 2.27%, up from 2.04% in 3Q24. This brings the 2024 full-year return to 8.95%, marking the second-best performance in eight years, behind 13.32% in 2023. The average bid price gained 62 basis points (bp), closing out the year at 97.33. Looking at ratings, single-B rated loans outperformed this quarter, posting gains of 2.51%, followed by double B and CCC-rated loans with positive returns of 2.21% and 0.17%, respectively. On a year-to-date basis, single-B rated loans outperformed with a total return of 9.55%. 

Strong demand has sparked a record wave of repricing activity. Total repricing volume was $153 billion in December, bringing 2024 total repricing volume to a record of $800 billion. Excluding repricings and amendments, total institutional volume was about $98.4 billion in 4Q24 and roughly $502 billion YTD (more than double the 2023 and 2022 volume). On the investor side, both institutional and retail demand increased this quarter as compared to the previous quarter. Collateralized loan obligations issuance grew to $59.5 billion, versus $40.6 billion in 3Q24 and $31.9 billion in 4Q 2023. 2024 full-year issuance set a new annual record at $201 billion with AAA rated loan spread meaningfully declining. On the retail side, the asset class saw a huge inflow of $6 billion, versus an outflow of $4.6 billion last quarter. Overall, 2024 was a positive year for the asset class, with retail funds recording a net inflow of $9.6 billion, a significant turnaround from the $17 billion net outflow in 2023.

There were five defaults in the Index during the quarter. The trailing 12-month default rate by principal amount increased to 0.91% from 0.80% in September. 

On a NAV basis, Class I shares of the Fund outperformed the Index. By ratings, the Fund’s primary relative contributor stemmed from selection in single-B rated loans. Additionally, underweight and selection in CCC rated loans added to performance. By industry, selection in the software space, IT Services, food products and healthcare providers and services contributed to this quarter’s performance. At an issuer level, the fund benefited from the avoidance of underperforming loans, most notably the avoidance of Newfold Digital Holdings Group, Inc. and Quest/One Identity. Away from loan-level performance, the Fund’s exposure to high yield (HY) bonds slightly detracted from performance, as the HY bond market underperformed loans in 4Q24 (0.17% return for the Bloomberg U.S. Corporate High Yield Index). 

Portfolio and positioning changes were both mostly minimal during the period. The number of individual names in the portfolio decreased from 343 to 330.

Current strategy and outlook

Looking forward, we expect economic growth to remain resilient. The recent election outcome further strengthens this view given the focus on growth and deregulation. On the other hand, uncertainties around United States–China relations remain an area of focus given the prospects for tariffs and ongoing trade tensions in the era of Trump 2.0. We believe the rhetoric from the administration will serve as a negotiating tactic, but actual policy will be watered down to have less of a negative impact. 

Overall, the current backdrop will remain favorable for loans. Although demand should remain strong due to expected strong CLO issuance, stronger net supply will counterbalance technical factors as mergers and acquisitions activity ramps up. The strong macro backdrop and easing cycle is expected to provide ongoing support to credit fundamental factors. While valuations are on the richer side, high carry should continue to cushion returns and protect from spread-widening events absent an external shock. Credit selection remains key, as the market continues to be bifurcated between the “haves” and “have-nots.” In terms of positioning, we continue to maintain our high single B rated loan profile and remain cautious on cyclically challenged media and telecom sectors.

Holdings detail

Companies mentioned in this report-percentage of Fund investments, as of 12/31/2024: Newfold Digital Holdings Group, Inc. 0% and Quest/One Identity 0%. 0% indicates that the security is no longer in the portfolio. Portfolio holdings are subjected to change on a daily basis.

Related Resources

Voya Floating Rate Fund Fact Sheet

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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.

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.

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