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Voya High Yield SMA Quarterly Commentary - 2Q25

Key Takeaways

The Bank of America Merrill Lynch High Yield Master II Index (the Index) returned 3.57% for the quarter. 

The SMA underperformed the Index on a both gross- and net-of-fees basis during the quarter, primarily due to its higher quality focus. 

Looking forward, our outlook is shaped by a complex mix of policy shifts, structural labor dynamics and evolving inflation trends.

Total return approach, investing in below-investment grade corporate securities with a bias towards higher quality and a concentrated posture.

Market 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. The tariffs imposed on China stood out since the severity of the levy—along with further escalation and retaliatory measures—effectively erased the economic incentive for United States and China trade. Markets reacted swiftly and negatively: equities dropped into correction territory, credit spreads widened sharply—many sectors hit 12-month wides—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, helped stabilize markets. Although uncertainty remained, the easing of trade tensions allowed risk assets to recover gradually through the remainder of the quarter. 

In fixed income markets, this uncertainty translated into heightened volatility. Treasury yields initially spiked on the tariff news, then retraced as the reprieve and softer inflation data took hold. Credit markets experienced a sharp widening in spreads early in the quarter, followed by a partial recovery as risk sentiment improved. Investors remained focused on balancing trade uncertainty against the potential for a soft landing. 

Overall, the second quarter of 2025 was a study in contrasts: geopolitical shocks met with central bank restraint, economic weakness offset by labor market strength, and inflation easing just as new risks to price stability emerged. As the July 9 tariff reprieve deadline approaches, markets remain on edge, with the next chapter in trade policy likely to shape the trajectory of both the economy and financial markets in the second half of the year.

Portfolio review

For the quarter, the SMA underperformed the Index on a both gross- and net-of-fees basis. The strategy’s focus on higher quality bonds detracted during the period.

Outlook

Looking forward, our outlook is shaped by a complex mix of policy shifts, structural labor dynamics and evolving inflation trends. Corporate investment has slowed in response to trade volatility, and higher import costs are expected to weigh on consumption. However, proposed tax cuts would support household incomes while deregulation efforts should improve business efficiency. As a result, we expect growth to slip below trend in the near-term, but stage a gradual rebound further out. 

For fixed income investors, elevated yields offer the potential for attractive total returns however, policy uncertainty will continue to drive episodes of volatility. That said, the current administration’s sensitivity to bond market reactions should help limit the severity and duration of these disruptions, but we will remain nimble. 

Credit markets have largely recovered from the “Liberation Day” shock, with spreads tightening back to levels that appear rich. As of quarter-end, investment grade (IG) corporate spreads were just 83 basis points (bp) while high yield (HY) finished 300 bp, a level that suggests markets are once again pricing in a near-perfect scenario. While corporate fundamental factors remain supportive, spreads at these levels leave little room for error, particularly as it relates to trade or policy risk. As such, we will continue to emphasize security selection with a preference for higher quality assets.

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Returns are benchmarked to the ICE Bank of America U.S. High Yield Master II Constrained Index, which does not incur management fees, transaction costs, or other expenses associated with a composite portfolio. The ICE Bank of America High Yield Master II Index is a market value - weighted index consisting of U.S. doll ar - denominated, non - investment grade bonds not currently in default and limits any individual issuer to a maximum of 2% benchmark exposure. Securities prices used to value the benchmark index f or the purposes of calculating total return may or may not differ significantly from those used to value securities held within composite portfolios. Index returns do not reflect fees, broker age commissions, taxes or other expenses of investing. Investors cannot invest directly in an index.

All investing involves risks of fluctuating prices and the uncertainties of rates of return and yield inherent in investing. High-Yield Securities, or “junk bonds”, are rated lower than investment-grade bonds because there is a greater possibility that the issuer may be unable to make interest and principal payments on those securities. The strategy may use Derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses and have a potentially large impact on performance. Foreign Investing does pose special risks including currency fluctuation, economic and political risks not found in investments that are solely domestic. Risks of foreign investing are generally intensified in Emerging Markets. As Interest Rates rise, bond prices may fall, reducing the value of the share price. Debt Securities with longer durations tend to be more sensitive to interest rate changes. Other risks of the Fund include but are not limited to: Credit Risks; Other Investment Companies’ Risks; Price Volatility Risks; Inability to Sell Securities Risks; and Securities Lending Risks. This information is proprietary and cannot be reproduced or distributed.

Companies’ Risks; Price Volatility Risks; Inability to Sell Securities Risks; and Securities Lending Risks. This information is proprietary and cannot be reproduced or distributed. Certain information may be received from sources Voya Investment Management (“Voya IM”) considers reliable; Voya IM does not represent that such information is accurate or complete. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial data.

Actual results, performance or events may differ materially from those in such statements. Any opinions, projections, forecasts and forward-looking statements presented herein are valid only as of the date of this document and are subject to change. Nothing contained herein should be construed as (i) an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Voya IM assumes no obligation to update any forward-looking information. 

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. 

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. 

BofA Merrill Lynch® indices used with permission, are provided “AS IS”, without warranties, and with no liability. BofAML does not sponsor, endorse, review, or recommend Voya or its products or services. 

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. 

Past performance does not guarantee future results.

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