Voya Credit Income Fund Quarterly Commentary - 1Q26

Class I shares of the Fund underperformed the benchmark on a NAV basis in 1Q26 due to fund fees and expenses, as the Fund outperformed on a gross-of-fees basis. On Gross-of fees basis, the outperformance was driven by issuer selection. The key contribution was a result of selection within the software segment of bank loans, as the Fund avoided a handful of software loans that came under sharp pressure due to AI risks and idiosyncratic developments. Additional but smaller contributions included selection in technology, building material, and retailers within its high yield (HY) holdings. Across ratings, the Fund’s relatively defensive posture and underweight in the CCC rating cohort provided a material benefit during the quarter, as CCC rated issuers were notable underperformers for the period. Asset allocation did not have a material impact on relative performance given the similar returns across the two markets.

The first quarter of 2026 unfolded as a period where AI driven disruption and mounting geopolitical risk combined to reshape the balance of risks across financial markets. Early in the quarter, investor attention was increasingly drawn to the accelerating impact of AI within the software sector. Rapid adoption of agentic AI tools began to challenge incumbent business models, which had often been underwritten on assumptions of high recurring revenue and low competitive risk, raising questions around the durability of cash flows that had historically supported leveraged balance sheets. These pressures were particularly relevant for senior loans, private credit, and business development company (BDC) portfolios, where the software industry comprises a relatively large portion of these sectors. Geopolitical risk moved decisively to the forefront as the quarter progressed. Following the early January U.S. military operation in Venezuela, tensions escalated sharply in late February when the United States and Israel entered into a direct military conflict with Iran. As Iran asserted effective control over traffic through the Strait of Hormuz, one of the world’s most critical energy chokepoints, the risk of prolonged disruption to global oil supply became increasingly apparent. Shipping volumes collapsed, oil prices surged, and inflation expectations moved meaningfully higher. Once markets recognized that the conflict—and its impact on the Strait—was likely to be extended, the selloff in risk assets gained momentum, reinforcing a broad repricing across credit markets. Against this backdrop, credit spreads finished the quarter broadly wider, and interest rates ended higher after significant volatility. The yield curve flattened materially, driven by a more aggressive selloff in front end rates relative to longer maturities, signaling expectations that higher policy rates would remain in place for longer than previously anticipated.

Given the more uncertain backdrop for spreads, performance within below investment grade (IG) credit sectors weakened in the first quarter. After grinding tighter in January, HY bond spreads widened in February and March and ended the quarter wider by 51 basis points (bp) at 317 bp. The deteriorating investor sentiment was also reflected in the loan market, as its weighted average bid price declined by 201 bp to 94.63. Key investor concerns in January and February were initially dominated by AI disruption risk in software and other adjacent sectors and in March by the escalating conflict in Iran, which increased investor unease around growth, inflation and the path of monetary policy. The software repricing had a more significant impact on the loan market due to its outsized exposure compared to HY, while the selloff in rates detracted from HY returns as investors began to price in less U.S. Federal Reserve cuts and potential inflationary pressures from the Iran conflict. The Bloomberg U.S. High Yield 2% Issuer Constrained Index returned –0.50%, slightly ahead of the Morningstar LSTA US Leveraged Loan Index, which returned –0.55% for the quarter. Unsurprisingly, higher-quality credits held in better during the volatility, as evidenced by the underperformance of CCC rated issuers in both markets, while dispersion remained elevated on both a sector and individual-name basis. The technical environment was more muted compared to last year but remained positive. Primary market issuance was relatively light in loans, but there was a material pick up in well-telegraphed mergers and acquisitions (M&A) volume. HY supply was driven by steady refinancings along with a pick-up in M&A-related transactions.

The evolving macro backdrop has led to additional volatility in corporate credit, as the conflict in Iran has injected increased uncertainty into global markets. The prevailing view so far is that a prolonged conflict could drive oil prices higher, reinforcing global inflationary pressures and potentially limiting the Fed’s ability to cut rates. Outside of these geopolitical considerations, underlying economic fundamental factors still remain supportive in the medium term, especially if the conflict was to resolve more quickly. U.S. economic growth has been supported by easing financial conditions, strong household balance sheets, and resilient consumer spending. In terms of risks, we remain highly focused on the implications of AI-driven disruption over the intermediate and longer-term horizon, particularly in sectors such as software and media. We are closely monitoring the potential for these technological shifts to impact labor markets, especially within higher income segments, as this could place downward pressure on consumer spending and broader economic growth. Other areas of key focus include the possibility of contagion effects stemming from deterioration within the private credit space.

In terms of asset allocation, we remain overweight to loans, which continue to have a carry advantage over HY, but we have a bias to close this gap as the yield difference normalizes over time. Our existing preference for loans has also been partially driven by idiosyncratic factors, as there has been more compelling risk and return opportunities by moving up in the capital structure from bonds into loans for select issuers. By ratings, we are underweight in the “right tail” of the market and maintain a single-B average credit profile, while staying focused on name-specific risk given the increased bifurcation in performance among borrowers. Across industries, the current macro backdrop warrants taking risk in more defensive balance sheets versus cyclical business models. As a result, we maintain our preference for food and beverage, capital goods, as well as select healthcare and financial issuers. In contrast, we are underweight in software, consumer cyclicals, chemicals, and structurally challenged media and telecom business models. Within energy, we favor midstream over exploration and production (E&P), as well as natural gas over oil.

Companies mentioned in this report—percentage of Fund investments, as of 3/31/26: N/A.