Multi-Asset Strategies and Solutions
Key takeaways
- For the quarter, the Fund outperformed the S&P Developed ex-U.S. Small Cap Index and the MSCI EAFE Small Cap Index on a net asset value (NAV) basis.
- As of quarter end, the Fund’s largest country exposures were Japan and United Kingdom.
- The Fund’s largest sector exposures were industrials and information technology sectors.
Market review
U.S. stock and bond markets faced challenges at the beginning of the second quarter, as hot inflation readings dampened expectations for U.S. Federal Reserve rate cuts. Towards the end of the quarter, however, the outlook improved as favorable May inflation data increased investor confidence in potential Fed rate reductions by September. This, along with continued strength in the labor market and rising earnings optimism helped broad equity markets post gains for the period. Large-cap stocks outperformed small caps and growth beat value. Within the S&P 500 Index (SP500, SPX), technology, communication services and utilities sectors led, while materials, industrials and energy lagged.
International stocks also moved higher, with emerging markets (‘EM’) outperforming developed. China and India, the two largest countries within the EM equity Index, both performed well. Chinese equities were helped by government support for the real estate sector and improving industrial production, while Indian equities saw strong performance continue after general elections concluded and Prime Minister Modi secured his third term in office. Japanese stocks underperformed in the period primarily due to uncertainty surrounding the Bank of Japan’s monetary policy normalization and the expected appreciation of the yen, which raise concerns about the competitiveness of Japanese exports.
Fixed income markets had mixed performance but declined in aggregate as the U.S. Treasury yield curve rose slightly. High-yield bonds performed well due to strong corporate earnings pulling spreads tighter. Like international equities, EM bonds outperformed developed market issues, as French government bonds dropped on political uncertainty.
Portfolio review
The Fund’s manager target allocations as of June 30th, 2024, were 50% to Victory Capital Management, LLC and 50% to Acadian Asset Management, LLC.
Sub-adviser details
Acadian Asset Management, LLC
For the quarter, the Fund’s Acadian Asset Management, LLC sleeve outperformed the S&P Developed ex-U.S. Small Cap Index. Stock selection and country allocations contributed to returns.
Key sources of positive active return included a combination of stock selection and an overweight position in Norway, a combination of stock selection and an underweight position in France, as well as a combination of stock selection and an underweight position in Australia. Leading advances within these markets respectively included a position in Hoegh Autoliners ASA (OTCPK:HOEGF), a lack of exposure to Eiffage (OTCPK:EFGSY) and an investment in Perseus Mining Ltd. (OTCPK:PMNXF)
Detractors included a combination of stock selection and an underweight position in Canada, stock selection in Japan and a combination of stock selection as well as an underweight position in Sweden. Leading declines within these markets in turn included a position in Russel Metals, Inc. (OTCPK:RUSMF), a holding in Micronics Japan Co. (OTC:MJPNF) and an investment in Arjo AB (OTCPK:ARRJF).
From a sector perspective, key sources of positive active return included stock selection in industrials, a combination of stock selection and an underweight position in consumer discretionary as well as a combination of stock selection and an underweight position in real estate. Leading advances within these sectors respectively included a position in Rockwool A/S (OTCPK:RKWBF), a holding in Brilliance China Automotive Holdings Ltd. (OTCPK:BCAUF) and an investment in Kindom Development. Detractors included a combination of stock selection and an underweight position in materials and stock selection in communication services. Leading declines within these sectors in turn included a lack of exposure to Kinross Gold (KGC) and a holding in Taboola.com Ord Shs. (TBLA)
Bottom-up stock selection continued to drive the portfolio.
Victory Capital Management, LLC
For the quarter, the Fund’s Victory Capital Management, LLC sleeve underperformed the S&P Developed ex-U.S. Small Cap Index. Security selection was modestly negative as excess returns were generated in two of five regions and five of the eleven economic sectors. From a style perspective, the Fund’s overall exposure to value, business momentum and quality factors all slightly contributed to relative performance with quality generating the strongest signal. At the sector level, selection was weakest in materials, consumer discretionary and energy.
Materials holding Daido Co. (OTCPK:DAIDF) was the top detractor during the quarter. The Japanese specialty steel producer declined after reporting results short of expectations and lower guidance on weaker demand in automotive and semiconductor production equipment. Within consumer discretionary, Japanese department store operator J. Front Retailing (OTCPK:JFROF) declined on lower profit guidance for next fiscal year as investments to improve its stores will take longer to realize earnings growth. In energy, Paladin Energy Ltd. (OTCQX:PALAF) fell on a weaker uranium spot price and the decision to acquire Canadian uranium miner, Fission Uranium (OTCQX:FCUUF) in an all- stock transaction.
Notable outperformance was generated within the Industrials sector and was boosted by two holdings. South Korean electric power equipment manufacturer, HD Hyundai Electric Co. rose as earnings continue to benefit from high global demand from electric grid infrastructure investment. Japanese power and telecommunication systems manufacturer Fujikura (OTC:FKURF) gained on expected benefits from increased growth in broadband related business as well as exposure to AI data center investments.
Relative performance was also strong in health care with the largest impact coming from a position in Classys. The Korean medical equipment manufacturer rose after its flagship Volnewmar product was granted Food and Drug Administration (FDA) approval earlier than expected. Overseas sales of consumables were also well above expectation.
We continue to be guided by our bottom-up analysis and remain focused on stock selection while adhering to our disciplined country and sector risk exposures.
Holdings detail
Companies mentioned in this report — percentage of portfolio investments, as of 6/30/2024: Hoegh Autoliners ASA 0.29%, Eiffage 0.00%, Perseus Mining Ltd. 0.23%. Russel Metals, Inc. 0.29%, Micronics Japan Co. 0.15%, Arjo AB 0.09%. Rockwool A/S 1.06%, Brilliance China Automotive Holdings Ltd. 0.07%, Kindom Development 0.00%, Kinross Gold 0.00%, Taboola.com Ord Shs 0.18%, Daido Co. 0.31%, HD Hyundai Electric Co. 0.43%, Paladin Energy Ltd. 0.15%, J. Front Retailing 0.00%.
0.00% indicates that the security was not or is no longer in the portfolio. Portfolio holdings are subject to daily change.
An investor should consider the investment objectives, risks, charges and expenses of the Fund(s) carefully before investing. For a free copy of the Funds’ prospectus, or summary prospectus, which contains this and other information, visit us at www.voyainvestments.com or call (800) 992-0180. Please read the prospectus carefully before investing. The S&P Developed Ex-U.S. SmallCap Index is an unmanaged index of small-cap stocks from developed countries, excluding the United States. The Index does not reflect fees, brokerage commissions, taxes or other expenses of investing. Investors cannot invest directly in an index. The MSCI Europe, Australasia and Far East (EAFE) Small Cap Index is an unmanaged index which measures the performance of small capitalization equities among developed markets around the world, excluding the United States and Canada. 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. Investments in Small-Capitalization Companies involve greater risk than is customarily associated with larger, more established companies due to the greater business risks of small size, limited markets and financial resources, narrow product lines and the frequent lack of depth of management. Foreign Investments/Developing and Emerging Markets Investing in foreign (non-U.S.) securities may result in the Fund experiencing more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies, due to smaller markets, differing reporting, accounting and auditing standards, and nationalization, expropriation or confiscatory taxation, foreign currency fluctuations, currency blockage, political changes or diplomatic developments. Foreign investment risks typically are greater in developing and emerging markets than in developed markets. Convertible Securities Convertible securities are securities that are convertible into or exercisable for common stock at a stated price or rate. Convertible securities are subject to the usual risks associated with debt securities, such as interest rate and credit risk. In addition, because convertible securities react to changes in the value of the stocks into which they convert, they are subject to market risk. Currency To the extent that the Fund invests directly in foreign currencies or in securities denominated in or that trade in foreign (non-U.S.) currencies, it is subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. 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 Fund and reduce its returns. 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. Value Investing Securities that appear to be undervalued may never appreciate to the extent expected. Further, because the prices of value-oriented securities tend to correlate more closely with economic cycles than growth-oriented securities, they generally are more sensitive to changing economic conditions, such as changes in interest rates, corporate earnings and industrial production. Other risks of the Fund include, but are not limited to: Investment by Other Funds, Investment Model Risk, Market Risk, Stock Risk, Other Investment Companies and Securities Lending. Investors should consult the Fund’s prospectus and statement of additional information for a more detailed discussion of the Fund’s risks. An investment in the Fund is not a bank deposit and is not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an otter to sell or solicitation of an otter 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 is no guarantee of 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. The Fund discussed may be available to you as part of your employer sponsored retirement plan. There may be additional plan level fees resulting in personal performance to vary from stated performance. Please call your benefits office for more information. ©2024 Voya Investments Distributor, LLC • 230 Park Ave, New York, NY 10169 • All rights reserved. Not FDIC Insured | May Lose Value | No Bank Guarantee Voya IM Home – Access Key Insights and Solutions | Voya Investment Management |
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