Voya Intermediate Bond Fund Quarterly Commentary - 1Q22

Voya Intermediate Bond Fund Quarterly Commentary - 1Q22

Total return approach, investing across full spectrum of the fixed income market including up to 20% in below investment-grade securities.

Dynamic Core Bond Strategy

Key Takeaways

  • For the quarter, on a net asset value (NAV) basis, the Strategy’s class I shares underperformed the benchmark, the Bloomberg U.S. Aggregate index (the “index”)
  • Sector allocation weighed on performance. Security selection also detracted, while duration and yield curve positioning added
  • Investors can take comfort in the fact that both corporations and households remain fundamentally sound. However, we have increased liquidity in the strategy and reduced exposure to sectors that remain tight
  • The strategy remains underweight U.S. Treasurys and neutral agency residential mortgage-backed securities (RMBS), while allocating risk across the corporate and securitized credit spectrum

Portfolio Review

Following another record Consumer Price Index print and strong jobs report, 1Q22 began with a more hawkish tone from the Federal Reserve (the “Fed”), which drove rates to rise to a post-pandemic high, and the yield curve to dramatically flatten by the end of the quarter. While remaining at tight levels, credit spreads also sold-off on increased concerns that a recession may be needed to break inflation. Volatility was exacerbated by Russia’s invasion of Ukraine, the scale of which few expected. The reaction from western nations was swift and severe; however, the voluntary actions from the private sector were arguably more surprising. The best example of this was when Shell, an oil company, publicly apologized for buying oil. This may very well mark a new era in corporate stewardship and, if so, investors should not ignore this new factor in corporate decision making. Following the invasion, oil prices, already well-off pandemic lows, broke $100 for the first time since 2014. Given the likely squeeze on consumer budgets, a new case for a recession entered the picture. That said, it is worth noting that energy costs make up a significantly smaller portion of consumer budgets today than in the late 1970s.

While a move wider was the theme for all spread sectors, the move was far from uniform. In corporate credit, investment-grade (IG) widened more than high-yield (HY), due in part to its higher sensitivity to interest rates and HY’s heavier tilt toward energy producers. New deals in the commercial mortgage-backed securities (CMBS) space printed modestly wider, while further recovery in delinquency rates allowed for continued price recovery in vintage deals, particularly lower-rated tranches. Agency mortgage-backed securities (MBS) also performed poorly, amidst rising rates and elevated rate volatility. Meanwhile, emerging-market (EM) debt posted the worst performance for the quarter, due to Russia and overall risk aversion.

With spreads wider, sector allocation weighed on performance for the period. In aggregate, our overweights to corporate and securitized sectors versus U.S. Treasurys, were headwinds amidst the risk-off sentiment. While most sector allocations detracted, our overweight to asset-backed securities (ABS) contributed during the quarter, reflecting the sector’s lower beta characteristics. In security selection, negative contributions from EM sovereigns and corporates, that included exposure to Russia and Ukraine detracted. This was offset by positive security selection within agency MBS — which included collateralized mortgage obligations (CMOs), and more credit sensitive CMBS investments. Duration and yield curve that reflected more defensive positioning, including a modest underweight throughout the quarter added to performance. Changes to the portfolio in large part, reflected relative value assessments as well as a decision to increase liquidity. We reduced our underweight in agency MBS, reflecting our view that the markets had largely discounted risks associated with balance sheet reduction by the Fed. We reduced our overweight across ABS, including collateralized loan obligations (CLOs), and trimmed allocations to CMBS as the sectors, and securities we selected have outperformed.

Current Strategy and Outlook

Through the remainder of the year, the Fed expects to hike its policy rate to around 2% and begin balance sheet runoff. We believe this will be achievable without causing disruptions to the market, if the Fed does not surprise the markets, and if inflation begins to wane. With supply chains broken and wage inflation persisting, corporations have an elevated incentive to invest. This handoff to a capital expenditure cycle should help to alleviate inflation pressure, increasing the likelihood of a soft landing.

In the near-term, investors can take comfort in the fact that both corporations and households remain fundamentally sound. Corporate profits grew at record levels in 2021 as consumers flush with cash allowed price increases to be passed through. And while home prices have risen significantly over the last 18 months, the data shows that the rise is not being fueled by increased debt. Nonetheless, while not our base case, the probability of a mild recession has moved definitively higher, and investors would be wise to increase liquidity in their portfolio and reduce exposure to sectors that remain tight. With rate volatility increasing and the Fed moving off the zero-lower bound, duration has re-emerged as an interesting tool to balance credit risk.


The Bloomberg Barclays U.S. Aggregate Bond Index is a widely recognized, unmanaged index of publicly issued investment grade U.S. Government, mortgage-backed, asset-backed and corporate debt securities. 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. High-Yield Securities, or “junk bonds,” are rated lower than investment-grade bonds because there is a greater possibility that the issuer may be unable to make interest and principal payments on those securities. To the extent that the Fund invests in Mortgage-Related Securities, its exposure to prepayment and extension risks may be greater than investments in other fixed-income securities. The Fund may use Derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses and have a potentially large impact on Fund performance. Foreign Investing poses special risks including currency fluctuation, economic and political risks not found in investments that are solely domestic. As Interest Rates rise, bond prices fall, reducing the value of the Fund’s share price. Other risks of the Fund include but are not limited to: Credit Risks, Extension Risks, Investment Models Risks, Municipal Securities Risks, Other Investment Companies’ Risks, Prepayment Risks, Price Volatility Risks, U.S. Government Securities and Obligations Risks, Debt Risks, Liquidity Risks, Portfolio Turnover Risks, and Securities Lending 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.

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 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