Voya High Yield Bond Fund Quarterly Commentary - 2Q23

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Total return approach, investing in below investment grade corporate securities.

Key Takeaways

  • Despite a volatile environment, the high yield (HY) market benefitted from the macroeconomic backdrop and increased risk appetite, producing positive returns across the credit stack.
  • For the quarter, the Fund underperformed on a net asset value (NAV) basis.
  • As always, our focus will be on security selection and finding pockets of value in an increasingly dispersed market.

Portfolio Review

Monetary policy continued to produce market volatility in the second quarter of 2023. Despite the failure of a fourth U.S. Regional Bank just two days prior, the U.S. Federal Reserve delivered another 25 basis points hike at their meeting in May. That said, with inflation trending in the right direction, and lending from banks expected to tighten, it was widely believed that this hike might be the last. Inflation data over the next couple months was relatively well behaved. While the numbers remained elevated, they avoided moving higher. Meanwhile, the labor market remained strong. Monthly job gains surpassed already elevated expectations, with each monthly gain exceeding the previous one. While the Fed did not deliver a hike at their meeting in June, these upside surprises in the labor market eliminated hope of a “pause”, with market participants instead viewing the Fed’s inaction as a “skip”. Accordingly, a hawkish Fed dot plot signaled that two more rate hikes could be on the horizon for the balance of the year.


In the HY market, credit spreads tightened during the quarter and now sit at the lowest level since early February. On an option-adjusted spread (OAS) basis, spreads finished the period 65 bp tighter at 390 bp. The HY market produced positive returns across the credit stack. However, much like the prior quarter, down-in-quality outperformance remained a theme, with BB rated bonds returning 0.89%, B rated bonds returning 1.90% and CCC rated bonds returning 4.18%, represented by securities within the Index. Despite the strong risk-on sentiment, performance has not been uniform across HY issuers, as dispersion remains elevated due to idiosyncratic reasons.

For the quarter, the Fund underperformed on a NAV basis. From a sector perspective, the portfolio’s exposure to retailers was the primary detractor during the period. While an overweight allocation to the sector provided a small boost, it was not enough to offset the performance drag resulting from security selection. Within the sector, the Fund was negatively impacted by its exposure to Victoria’s Secret and Co., which underperformed due to poor earnings, as well as the avoidance of Carvana, which rallied from distressed levels despite the lack of a fundamental change in the company’s business.Strategy overviewTotal return approach, investing in below

Current Strategy and Outlook

Looking forward, we believe the recent data releases on the economic front have minimized the prospect of a near-term recession. However, the strength of the labor market and, in turn, the consumer should influence the Fed to maintain a hawkish stance until inflation moderates further. While corporate earnings have remained somewhat resilient, we expect margins to decline during the second half of the year, as pricing power diminishes while the sticky components of core inflation remain elevated.

In the HY market, performance has been resilient, supported by strong technical factors. Yields are arguably more attractive than spreads and will allow the market to absorb a modest back-up and still produce positive returns. While spreads will undoubtably move wider in a pronounced economic slowdown, we believe the HY market should be able to successfully navigate a milder recessionary scenario, as the path to materially wider spreads remains limited, given healthy starting point in issuer fundamental factors and the improved rating profile of the HY market.

In terms of sector positioning, we remain positive on building materials due to favorable supply and demand dynamics in the housing sector. While our overweight to the energy sector has decreased relative to historical norms, we remain constructive on the sector, given positive view on the underlying oil and gas commodity. In terms of ratings, we remain fairly risk neutral across cohorts but have pared down a bit of cyclical exposure, particularly in lower-rated ratings, with the view of gross domestic product growth slowing amid the more difficult macro backdrop. In addition, 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.


The Bloomberg Barclays High Yield Bond—2% Issuer Constrained Composite Index is an unmanaged index that includes all fixed income securities having a maximum quality rating of Ba1, a minimum amount outstanding of $150 million, and at least one year to maturity. 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. Investments rated below investment-grade (or of similar quality if unrated) are known as High-Yield Securities or “junk bonds.” High-yield securities are subject to greater levels of credit and liquidity risks. High-yield securities are considered primarily speculative with respect to the issuer’s continuing ability to make principal and interest payments. Call Risk During periods of falling interest rates, a bond issuer may call or repay its high-yielding bonds before their maturity date. If forced to invest the unanticipated proceeds at lower interest rates, the Fund would experience a decline in income. Prices of bonds and other debt securities can fall if the issuer’s actual or perceived Credit Risk deteriorates, whether because of broad economic or company-specific reasons. In severe cases, the issuer could be late in paying interest or principal or could fail to pay altogether. 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 risks of the Fund include but are not limited to: Liquidity Risk, Credit Derivatives Risk, Securities Lending Risk, Interest Rate Risk and U.S. Government Securities and Obligations Risks. 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.

AAA is the highest grade (best) to D which is the lowest (worst) is calculated based on S&P, Moody’s, and Fitch agency ratings. If the ratings from all 3 rating agencies are available, securities will be assigned the Median rating. If the ratings are available from only two of the agencies, the more conservative of the ratings will be assigned to the security. If the rating is available from only one agency, then that rating will be used. Any security that is not rated is placed in the NR (Not Rated) category. Ratings do not apply to the Fund itself or to the Fund shares. Ratings are subject to change.