Voya Small Cap Growth Fund Quarterly Commentary - 4Q24

For the quarter ended December 31, 2024, the Voya Small Cap Growth Fund underperformed the Russell 2000 Growth Index (the Index) on a net asset value (NAV) basis, due to stock selection. Negative stock selection in the consumer discretionary, health care and information technology sectors were partially offset by contributions from stock selection in the materials sector and overall sector allocation effect. 

Top individual detractors to performance included Century Communities, Inc., Exact Sciences Corp. and PACS Group, Inc. 

Century Communities, Inc. (CCS), a national home builder of single-family homes, was the largest detractor to performance for the quarter. With the expected magnitude and trajectory of the Fed rate cuts now being pushed out, CCS’s future growth prospects are now more subdued. Accordingly, we have trimmed our position yet maintain a small position in the stock.

Exact Sciences Corp. (EXAS), a cancer screening company focused on early detection and prevention, underperformed for the quarter. Following a 3Q24 miss and guide down due to weaker than expected Cologuard volumes and the delayed rollout of new Cologuard-Plus colorectal screening product, we exited the position given the opaque outlook. 

PACS Group, Inc. (PACS), a home healthcare provider of skilled nursing care, declined dramatically following a short report alleging fraudulent billing and referral practices. In addition, delayed quarterly filings by the company added to the uncertainty and weakness in the stock. Given the accusations were not immediately refuted which creates a lack of clarity on fundamental factors, we chose to exit the position during the quarter. 

Top individual contributors included Astera Labs, Inc., Construction Partners, Inc. and Summit Materials, Inc. 

Astera Labs, Inc. (ALAB), a semiconductor manufacturing company poised to benefit from the artificial intelligence (AI) infrastructure boom, was the leading positive contributor for the quarter. ALAB chips power over 80% of AI servers, providing connectivity between central processing units (CPUs), graphics processing units (GPUs), memory and storage systems and is well positioned for future growth within a developing industry. We are mindful of the significant appreciation during the quarter (100%) and its’ U.S. $14 billion market cap, but maintained our current position as of the end of the quarter. 

Construction Partners, Inc. (ROAD), an infrastructure company specializing in the construction and maintenance of roadways, highways, bridges and airports predominantly in the Southeastern United States, also contributed. Following its’ acquisition of Lone Star Paving and Overland Corp., ROAD significantly added to its’ growth potential by accessing the sizable Texas and Oklahoma markets. We took this positive news and resulting price appreciation to take profits during the quarter, but continue to own the stock. 

Summit Materials, Inc. (SUM), a construction materials company, was a top contributor for the quarter. In November, SUM announced an agreement to be acquired by Quikrete, a specialty concrete company, for $52.50 per share. We currently maintain our position and will use the stock as a source of funds when needed.

Over the past six months, our investment philosophy and process has resulted in a portfolio more tilted to cyclical and interest rate sensitive areas of the market given revenue, cashflow and earnings growth prospects and relative valuations. The market reacted positively to the possibility of several Fed rate cuts starting in September 2024 and continuing into 2025. In addition, quick closure of what was a highly contested election was quickly resolved with a clear winner in favor of deregulation and lower taxes and was positively received. However, since late November the overall market tone has changed and the reality of strong economic growth and a robust labor market has reminded investors that the Fed is still focused on controlling inflationary trends and continues targeting their previously stated 2% level. Given this pivot, our previous positioning within the portfolio has adjusted to a more balanced stance and we continue to look for companies with strong growth prospects. Negatively, Trump’s tariff initiatives are being viewed as inflationary by the market, creating further uncertainty in the investment environment. We are continuing to monitor any developments related to policy that could impact our portfolio holdings. 

We expect mixed economic data and macro news to persist. However, the trend appears to point toward declining inflation and moderating unemployment. We believe the Fed will continue to be cautious in their forward approach and are managing the current environment effectively. The Voya Small Cap Growth Fund has a long history of managing through various cycles. We remain cognizant of the risk versus reward balance within the portfolio and at the individual company level. As we have said for several quarters, small cap growth stock valuations are at attractive levels relative to their large cap growth counterparts and continue to trade at a sizable discount on a relative basis (roughly 38% as of 12/31/2024). Although a “higher for longer” environment could delay small cap stocks’ outperformance, prudent and disciplined bottom-up stock selection should produce strong relative and absolute returns over a full market cycle.

Companies mentioned in this report—percentage of portfolio investments, as of 12/31/24: Century Communities, Inc. 0.72%, Exact Sciences Corp. 0.00%, PACS Group, Inc. 0.00%, Astera Labs, Inc. 1.28%, Construction Partners, Inc. 1.25% and Summit Materials, Inc. 1.27%; 0% indicates that the security is no longer in the Fund. Portfolio holdings are subject to daily change.