Voya Securitized Credit Fund Quarterly Commentary - 4Q25

The fourth quarter of 2025 opened against an unusually opaque macro backdrop as the U.S. government shutdown stretched to a record 35 days, halting the flow of key economic data and adding friction to an already uncertain environment. Investors and policymakers were forced to navigate “in the fog,” relying on secondary indicators while weighing the implications of aggressive corporate spending on AI and data‑center infrastructure. Although the shutdown’s direct economic impact ultimately proved modest, its timing amplified market anxiety as early‑quarter volatility spiked across risk assets. When official data finally resumed, it confirmed a cooling labor market—October payrolls fell by more than 100,000 jobs and November added only 64,000—with most weakness tied to government layoffs but with private‑sector momentum clearly slowing. Inflation remained elevated but stable, giving the U.S. Federal Reserve enough cover to cut rates twice during the quarter, extending the easing cycle that began in 3Q25. The resulting shift lower in rate volatility and a slightly steeper curve helped stabilize sentiment into year end, allowing major markets to recover and finish near all‑time highs.

Against this backdrop, securitized markets delivered broadly positive results, with spread sectors generally outperforming and benefiting from resilient fundamental factors. Agency mortgage-backed securities (MBS) was the standout performer within the securitized index, generating sector‑leading total and excess returns as lower rate volatility, a friendlier policy backdrop, and December’s “QE‑light” announcement drove spreads materially tighter. That strength created a major headwind for our strategy’s relative performance, given our lack of exposure. Outside the agency complex, issuance was unseasonably heavy across asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), and collateralized loan obligations (CLOs) as issuers seized on lower financing costs, yet demand remained sufficient to absorb supply without destabilizing spreads. ABS markets produced modestly positive excess returns, with higher‑quality non‑benchmark segments such as solar ABS continuing to recover from first‑half disruptions. Credit performance in subprime auto remained under pressure, though stresses did not accelerate. CLOs, meanwhile, kept pace with broader corporate‑credit trends as fundamental metrics improved and concerns tied to earlier‑year idiosyncratic events faded. 

Commercial and residential mortgage‑credit sectors also performed well. CMBS benefitted from stable fundamental factors and spread tightening in single asset single borrower (SASB) and commercial real estate CLOs structure, even as conduit was challenged by heavy issuance. Delinquencies remained elevated but broadly range‑bound, with stress still concentrated in office properties. Non-agency residential mortgage-backed securities (RMBS) was supported by strong borrower credit profiles, low delinquencies, and firm investor demand despite abundant supply. Spread tightening was most pronounced in non‑qualified mortgage and credit risk transfer (CRT) mezzanine tranches, though less‑levered segments such as prime jumbo also performed well. Home‑price appreciation stabilized through 4Q25 after slowing earlier in the year, with regional divergences persisting but overall fundamental factors resilient. 

Overall, our Fund delivered attractive excess returns versus Treasuries. CMBS was the top driver, followed closely by non-agency RMBS. CLOs and ABS also delivered positive results, but to a smaller degree. Duration provided an additional source of return, as front‑end yields declined in response to softening labor‑market data and shifting expectations for additional Fed easing in 2026. Relative to the securitized benchmark, our lack of agency MBS exposure was a major headwind given that sector’s outsized performance.

The outlook for early 2026 begins with a macro environment that is transitioning from uncertainty toward cautious optimism. The data disruptions caused by the prolonged government shutdown in late 2025 have faded, but their effects linger in policymaker sentiment and investor positioning. With the labor market showing clear signs of cooling but not collapsing, and inflation stabilizing rather than re‑accelerating, the Fed enters the new year with scope to maintain easier financial conditions. We expect economic growth to surprise to the upside, supported by a resilient consumer and the ongoing investment cycle tied to AI and data‑center expansion. This combination—firmer growth alongside a more accommodative Fed—is unusual but constructive, particularly for credit‑oriented investors navigating an environment where risk appetite is improving but valuations across many fixed‑income sectors remain compressed. 

Within securitized markets, several thematic currents are set to define opportunity. Residential mortgage credit stands out as a focal point. With the Fed‑induced decline in rate volatility and a renewed tightening in mortgage spreads, we see the potential for a material pickup in prepayment activity. As such, we view prepayments as “one of the cheapest enduring risks” available in fixed income heading into 2026. Meanwhile, the housing market remains in structural adjustment, with supply constraints continuing to resolve unevenly across regions. Even with spreads tight, the sector offers a compelling combination of borrower credit strength, stable collateral fundamental factors, and potential prepayment tailwinds. 

Commercial mortgage credit enters the year with improving momentum. While issuance surged in late 2025, testing liquidity, the sector ultimately drew strong demand from insurers and money managers. CMBS remains in the mix as for “cheapest risk” in securitized markets, particularly as financial conditions ease pro‑cyclically into an improving economic backdrop. Our allocation remains a cornerstone of the portfolio, positioned to benefit from a market transitioning toward a more self‑sustaining credit cycle. Elevated office‑sector delinquencies persist, but fundamental factors elsewhere have stabilized, and spreads continue to offer relative value compared to similarly rated corporate credit.

Diversification across ABS and CLOs rounds out the opportunity set. ABS markets enter 2026 with several subsectors still offering spread premiums stemming from earlier‑year disruptions. The “battlegrounds” of 2025 in consumer credit have largely resolved, leaving certain subsectors—including solar—as attractive sources of carry. CLOs market, by contrast, face a transition period: the “higher‑for‑longer” rate environment that benefited senior tranches in 2025 is now shifting, creating potential volatility as credit conditions recalibrate. With our portfolio focused primarily in high‑quality (A and above) tranches, the portfolio is well‑positioned to weather this adjustment while retaining flexibility to add lower‑quality CLOs risk once the cycle turns. 

Overall, while valuations across securitized markets are tight, the combination of easier policy, improving growth, and sector‑specific tailwinds sets the stage for a constructive—though selective—investment environment in 2026.