Voya Securitized Credit Fund Quarterly Commentary - 2Q26

The second quarter of 2026 was defined by a market grappling with a surprisingly resilient economy, persistent inflation pressures, and a meaningful reassessment of monetary policy expectations. The quarter began with an upside surprise in employment, as a sharp rebound in job creation following a weak February report reinforced the view that labor market conditions remained healthy. As subsequent employment releases continued to exceed expectations and unemployment remained relatively low, investors increasingly questioned whether the U.S. Federal Reserve would ease policy at all. At various points during the quarter, markets openly debated whether the next policy move could be another rate hike rather than a rate cut. Inflation remained at the center of that discussion. While shelter inflation continued to moderate, higher energy prices associated with geopolitical disruptions in the Middle East, combined with tariffs and cyclical pressures elsewhere in the economy, kept broader inflation measures stubbornly elevated. As a result, investors spent much of the quarter adjusting to a “higher-for-longer” interest rate environment, with Treasury yields moving steadily higher and the front end of the curve leading the selloff as expectations for near-term easing were pushed further into the future. 

Geopolitical developments added another layer of complexity. The ongoing conflict with Iran remained a key driver of market sentiment, periodically generating concerns around energy markets, global shipping routes, and inflation. While headlines produced episodes of volatility throughout the quarter, diplomatic developments generally reduced fears of the most disruptive outcomes. Oil prices, which had surged earlier in the year, retraced much of those gains and ultimately finished the quarter near pre-war levels, helping ease some inflation concerns and allowing investors to refocus on underlying economic fundamental factors. At the same time, artificial intelligence continued to dominate both macroeconomic discussions and capital markets activity. Artificial intelligence-related investment spending remained enormous, fueling one of the largest debt-financing cycles in recent history, as companies sought financing for data centers, computing capacity, and other AI-related initiatives. Importantly, unlike prior investment booms, much of the borrowing came from issuers with strong balance sheets and substantial liquidity, causing investors to view the surge in issuance primarily as a technical and valuation challenge rather than a credit concern. Financial markets ultimately demonstrated a remarkable capacity to absorb these financing needs, highlighting both the depth of investor demand and continued confidence in corporate fundamental factors. 

Within fixed income markets, rising rates created headwinds, but credit sectors proved notably resilient. As fears of an economic slowdown faded and investors gained confidence in the durability of growth, spreads retraced much of their earlier widening and generally finished the quarter tighter. Across securitized credit sectors, primary issuance remained robust across sectors, while secondary market trading volumes stayed elevated as investors actively repositioned portfolios against a backdrop of shifting rate expectations and geopolitical uncertainty. The combination of resilient economic activity, healthy consumer fundamental factors, and strong institutional demand supported performance across residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), asset-backed securities (ABS), and collateralized loan obligations (CLOs). Investor interest in high-quality spread assets remained strong despite higher Treasury yields, underscoring the relative attractiveness of securitized credit in an environment where income generation and fundamental credit performance continued to command a premium. 

Against this backdrop, our strategy outperformed the Securitized benchmark, with positive contributions from all four sectors. Although rising interest rates caused duration to detract from absolute returns, our shorter-duration positioning relative to the benchmark contributed to relative performance. A particularly important contributor was our lack of exposure to Agency RMBS, which represents more than 90% of the benchmark. In a quarter characterized by higher rates, shifting policy expectations, and elevated supply, that positioning helped insulate the portfolio from duration and technical pressures.

Looking ahead, economic growth appears poised to remain resilient, supported by healthy labor markets, accommodative financial conditions, and a powerful investment cycle centered on AI. While policy and geopolitical developments—including ongoing tensions in the Middle East and a potentially contentious midterm election cycle—are likely to remain sources of periodic volatility, the more important force for markets may be the continued strength of private-sector spending and investment. The AI buildout continues to drive substantial capital expenditures, helping offset areas of the economy that are experiencing slower growth. At the same time, inflation is expected to remain above the Fed's target, creating a backdrop of higher-for-longer interest rates and reinforcing the importance of income generation and security selection across fixed income markets. Against this backdrop, we believe the greatest challenge for investors is likely to be valuation rather than economic weakness, as risk assets across many sectors continue to reflect a relatively constructive outlook. 

Within securitized markets, we continue to see attractive opportunities despite a backdrop of generally tight spreads. RMBS remain our largest allocation, reflecting our conviction that housing-related assets offer compelling risk-adjusted return potential. Pockets of stress remain evident in areas such as FHA and Non-QM lending, but realized losses across the broader housing finance system remain relatively modest. 

Prime Jumbo RMBS remains our single largest subsector within mortgage credit, as the sector is well positioned should housing-market activity revive. Recent policy initiatives, including the ROAD Act and anticipated reductions in bank capital requirements tied to Basel III, have the potential to improve mortgage-market efficiency and support a long-awaited recovery in housing activity. 

CMBS remain another key portfolio allocation—only slightly behind RMBS. We continue to believe CMBS offers some of the most attractive relative value opportunities within securitized credit, although the path forward is unlikely to be uniform. Higher rates have slowed the recovery in commercial real estate, particularly within challenged office properties, where loss severities remain a concern. As a result, we believe the opportunity has increasingly shifted from broad asset allocation exposures toward security selection, where credit differentiation and structural analysis can drive alpha generation. 

Within ABS, our allocation remains concentrated of benchmark consumer credit subsectors. Consumer fundamental factors have generally stabilized alongside a firm labor market, while issuance activity remains robust. Record issuance volumes appear increasingly likely, yet investor demand continues to absorb supply effectively, particularly as banks gradually re-enter the market in search of attractive yields. 

Our CLO allocation remains concentrated high-quality tranches rated single-A and above. The interaction between AI-driven disruption and corporate credit fundamental factors has renewed the importance of collateral analysis, while higher-for-longer interest rates remain supportive of income generation for senior tranche investors. During the quarter, we monetized BB positions that were purchased opportunistically earlier in the year when spreads widened and valuations became particularly compelling. With spreads retracing and relative value improving elsewhere, we redeployed that capital into non-agency RMBS, where elevated primary market issuance created an abundance of attractive investment opportunities. 

Overall, our outlook remains constructive. Economic growth appears to be settling closer to trend rather than recession, labor markets remain healthy, and securitized credit fundamental factors continue to compare favorably with many competing fixed-income sectors. While valuations have become less forgiving and volatility may periodically increase, we believe disciplined security selection, relative-value analysis, and active sector positioning remain the most effective tools for generating attractive risk-adjusted returns in the quarters ahead.