Voya Large-Cap Growth Fund Quarterly Commentary - 4Q22

Seeking the Growth Potential and Stability of Large Caps

Voya Large-Cap Growth Fund Quarterly Commentary - 4Q22

Actively managed large cap growth strategy that relies on fundamental research and analysis to identify companies with strong and accelerating business momentum, increasing market acceptance and attractive valuations.

Key Takeaways

  • Markets finished the year with continued volatility, with stocks rallying in October and November before falling again in December to close out the year. The US Federal Reserve continued hiking rates in an attempt to ease inflationary pressures, and questions remain as to whether or not taming inflation will lead to recession. The Ukraine and Russia conflict also remains a factor for the global economy.
  • For the quarter, the Strategy underperformed its benchmark, the Russell 1000 Growth Index (the Index), on net asset value (NAV), due to unfavorable stock selection, particularly within the information technology sector.
  • While inflation appears to have peaked and the Fed has shown signs of moderating its aggressive rate hikes, we are entering into a new phase of uncertainty regarding the likelihood of a recession, as well as its potential magnitude. If and when the Fed pivots on rates may determine if the kind of volatility, we have seen will continue into 2023.

Portfolio Review

The major US and non-US stock Indexes overcame negative returns in December to end the fourth quarter with gains. US stock results varied by market capitalization: Midcaps were the strongest performers, followed by large caps, then by small caps. Across market cap segments, value styles outperformed growth styles. Technology stocks continued to suffer from rising interest rates and posted losses for the quarter.

Broad gauges of US and non-US bonds posted gains for the quarter, though non-US bonds gained more than twice as much as US bonds. Results varied at the asset-class level: Long-term US Treasury securities sustained the largest losses, whereas long-term corporate bonds and high yield were among the strongest performers. Shorter-term corporate bonds and government securities saw positive returns.

For the quarter ended December 31, 2022, the Strategy underperformed the Index on NAV basis due to unfavorable stock selection. Allocation effects and stock selection in consumer discretionary contributed the most to performance. Unfavorable stock selection in the information technology, and to a much lesser extent, materials, sectors detracted the most from performance.

Key contributors to performance were Tesla, Inc., DexCom, Inc. and Boston cientific Corp.

An underweight position in Tesla, Inc. (TSLA) contributed to performance. Demand has softened and the company is facing competitive challenges in both the United States and China heading into 2023. In addition, CEO Elon Musk’s purchasing Twitter remains a distraction that investors are getting weary of.

An overweight position in DexCom, Inc. (DXCM) contributed to performance. The company reported strong quarterly results and raised the lower end of its full year guidance. DXCM also announced the Food and Drug Administration (FDA) approval of its G7 device for diabetes management.

Owning a non-benchmark position in Boston Scientific Corp. (BSX) contributed to performance. The company has experienced durable growth, with an increase in organic revenue and market share. In addition, BSX has spent more on research and development (R&D) than its peers, which should be an advantage in new product initiatives.

Key detractors from performance were CrowdStrike Holdings, Inc., Palo Alto Networks, Inc. and Mastercard Inc.

An overweight position in CrowdStrike Holdings, Inc. (CRWD) detracted from performance. The company reported a mixed quarter, and a weak economic environment is causing delayed deals and longer sales cycles. CRWD had their first ever annual recurring revenue (ARR) miss and also provided light guidance.

An overweight position in Palo Alto Networks, Inc. (PANW) detracted from performance. Macro challenges have contributed to slower next generation expansion and some uncertainty around the timing of large deals.

Not owning a position in Mastercard Inc. (MA) detracted from performance. The company reported positive results, with both earnings and revenue exceeding expectations. Cross-border revenue growth was better-than-expected as travel has continued to recover, and consumer spending remains resilient.

Current Strategy and Outlook

Investors can be forgiven for wanting to put 2022 in the rearview mirror. High inflation, rate hikes, market volatility, the war in Ukraine and resurging Covid infections top the list of things we would like to move past. Will 2023 bring more troubles, or do investors have reasons for optimism? The Eurozone appears to be headed for a recession, whereas the US seems slightly less at risk. The markets are hunting for imbalances, such as whether China’s return to growth will be stymied by its significant debt burden. There is at least one reason for optimism: The end of the global interest-rate hiking cycle may be in sight, letting markets focus more on economic fundamental factors.

Holdings Detail

 

Companies mentioned in this report – percentage of Strategy investments, as of 12/31/22: Tesla, Inc. 0.71%, DexCom, Inc. 2.18%, Boston Scientific Corp. 2.01%, CrowdStrike Holdings, Inc. 0.64%, Palo Alto Networks, Inc. 1.43% and Mastercard Inc. 0%; 0% indicates that the security is no longer in the portfolio. Portfolio holdings are subject to daily change.

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The Russell 1000 Growth Index is an unmanaged index that measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted directly in an index. 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. Growth Investing Prices of growth stocks typically reflect high expectations for future company growth, and may fall quickly and significantly if investors suspect that actual growth may be less than expected. Growth companies typically lack any dividends that might cushion price declines. Growth stocks tend to be more volatile than value stocks, and may underperform the market as a whole over any given time period. 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 Portfolio and reduce its returns. Other risks of the Portfolio include, but are not limited to: Liquidity, Company, Currency, Foreign Investments, Market, Other Investment Companies and Securities Lending. Investors should consider the Portfolio’s prospectus and statements of additional information for a more detailed discussion of the Portfolio’s risks. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.

The strategy employs a quantitative model to execute the strategy. Data imprecision, software or other technology malfunctions, programming inaccuracies and similar circumstances may impair the performance of these systems, which may negatively affect performance. Furthermore, there can be no assurance that the quantitative models used in managing the strategy will perform as anticipated or enable the strategy to achieve its objective.

The strategy is available as a mutual fund or variable portfolio. The mutual fund may be available to you as part of your employer sponsored retirement plan. There may be additional plan level fees resulting in personal performance that varies from stated performance. Please call your benefits office for more information.

Variable annuities and group annuities are long-term investments designed for retirement purposes. If withdrawals are taken prior to age 59½, an IRS 10% premature distribution penalty tax may apply. Money taken from the annuity will be taxed as ordinary income in the year the money is distributed. An annuity does not provide any additional tax deferral benefit, as tax deferral is provided by the plan. Annuities may be subject to additional fees and expenses to which other tax-qualified funding vehicles may not be subject. However, an annuity does provide other features and benefits, such as lifetime income payments and death benefits, which may be valuable to you.

Variable investments, of any kind, are not guaranteed and are subject to investment risk including the possible loss of principal. The investment return and principal value of the security will fluctuate so that when redeemed, it may be worth more or less than the original investment. In addition, there is no guarantee that any variable investment option will meet its stated objective. All guarantees are based on the financial strength and claims paying ability of the issuing insurance company, who is solely responsible for all obligations under its policies.

Insurance products, annuities and funding agreements issued by Voya Retirement Insurance and Annuity Company (“VRIAC”), One Orange Way, Windsor, CT 06095, which is solely responsible for meeting its obligations. Plan administrative services provided by VRIAC or Voya Institutional Plan Services, LLC (“VIPS”). Securities distributed by or offered through Voya Financial Partners, LLC (“VFP”) (member SIPC)or other broker-dealers with which it has a selling agreement. Only Voya Retirement Insurance and Annuity Company is admitted and can issue products in the state of New York. All companies are members of Voya Financial.

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 does not guarantee 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

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