Seeking the Growth Potential and Stability of Large Caps

Voya Large-Cap Growth Fund Quarterly Commentary - 3Q24

Key Takeaways

In the third quarter of 2024, equity markets showed varied performance, with a notable broadening of returns. Small- and mid-cap stocks led the way, while emerging markets benefited from a strong rebound in China. Falling interest rates boosted bond returns, and value stocks outperformed growth stocks, driven by defensives, cyclicals and banks. Although technology saw a slight uptick in September, its sector returns were muted compared to the first half of the year. Artificial intelligence (AI) continued to be a significant driver, with companies involved in AI development and integration being rewarded.

For the quarter, the Fund underperformed its benchmark, the Russell 1000 Growth Index (the Index), on a net asset value (NAV) basis due to unfavorable stock selection.

Looking ahead to the remainder of 2024, the equity market outlook is cautiously optimistic despite expected volatility. Uncertainties surrounding U.S. Federal Reserve policies, upcoming elections and rising geopolitical tensions are likely to cause continued market fluctuations. However, positive signals include potential buying opportunities in large-cap stocks and a generally favorable reaction to recent rate cuts. Additionally, a strong labor market could further support equities.

Actively managed large cap growth strategy that relies on fundamental research and analysis to identify companies with strong and accelerating business momentum, increasing market acceptance and attractive valuations.

Portfolio review

U.S. stocks advanced during the third quarter following the Fed implementing a larger-than-expected 50 basis points interest rate cut. The S&P 500 Index rose by 5.89% and the Nasdaq Composite grew by 2.57% during the quarter. The utilities and real estate sectors led, while information technology and communications services lagged. Small cap stocks outperformed large caps and value significantly beat growth.

U.S. bonds logged their first positive quarterly performance of 2024 in the past three months. The Bloomberg U.S. Aggregate Bond Index rose by 5.20%. The 10-year U.S. Treasury yield fell from 4.48% at the beginning of July to 3.81% by quarter end (declines in the 10-year yield generally signal investor pessimism).

For the quarter ended September 30, 2024, the Fund underperformed the Index on a NAV basis primarily due to unfavorable stock selection. The underperformance was namely driven by negative stock selection, most notably within the consumer discretionary, information technology and financials sectors. Additionally, not allocating a weight in the real estate sector was another headwind. Alternatively, stock selection within communication services, health care and materials sectors contributed to performance.

Key contributors to performance were Alphabet Inc., Sherwin-Williams Co. and McCormick and Co., Inc.

Not owning the combined shares of Alphabet Inc. (GOOG/GOOGL) contributed to performance. The stock price fell in mid-August after a judge ruled against Google in an antitrust trial concerning its search division, brought by the Department of Justice, sparking discussions about a potential breakup by U.S. authorities.

Our overweight position in Sherwin-Williams Co. (SHW) contributed to performance. The company's strong 2Q24 commentary regarding its ability to gain market share, control pricing and capitalize on an expected recovery in the housing market over the next 12 months boosted investor confidence.

Owning a non-benchmark position in McCormick and Co., Inc. (MKC) contributed to performance. The company's strong momentum drove positive 3Q24 fiscal 2024 results, with its diverse portfolio, successful pricing and cost-saving efforts leading the way.

Key detractors from performance were Micron Technology, Inc., Tesla, Inc. and CrowdStrike Holdings, Inc.

Our non-benchmark investment in Micron Technology, Inc. (MU), a memory and storage manufacturer, detracted from this quarter. While shares recovered in late September following a positive, well-received earnings report, the stock price declined earlier in the period along with its peers as concerns regarding the longevity of the current memory cycle weighed on results.

Our underweight position in Tesla, Inc. (TSLA) detracted from performance this quarter. The stock rose after the announcement of a robotaxi event in October, with global deliveries also rebounding in the third quarter.

Our overweight position in CrowdStrike Holdings, Inc. (CRWD) detracted from performance this quarter. The stock declined following an IT outage in July with uncertainty regarding financial impact weighing on the shares

Current strategy and outlook

The stickiness of the “last mile” of inflation suggests the United States may be facing structural inflation pressures, driven by supply chain constraints and a tight labor market (despite disappointing job growth numbers, layoffs have not increased and unemployment remains at only 4.2%). Inflation that persists above 2% may prevent the Fed from cutting rates as aggressively as the market hopes. The anticipated rate cuts resemble past recession scenarios, but today’s economic landscape differs significantly—the current economy does not seem to be on the brink of collapse. In fact, in Fed Chair Powell’s words, “the U.S. economy is basically fine.” The temporary boost to the workforce from immigration and shift in consumer spending back to services have also helped dampen inflation, but these trends may not be sustainable.

This disconnect could lead to increased volatility, especially in the bond market, if the Fed’s actual moves fall short of expectations. Investors should be prepared for potential sharp adjustments in pricing as the market navigates its perceptions this rate-cutting cycle.

Holdings Detail

Companies mentioned in this report — percentage of Strategy investments, as of 09/30/24: Alphabet Inc. 3.28%, Sherwin-Williams Co. 1.39%, McCormick and Co., Inc. 1.26%, Micron Technology, Inc. 1.06%, Tesla, Inc. 1.60% and CrowdStrike Holdings, Inc. 1.04%; 0% indicates that the security is no longer in the portfolio. Portfolio holdings are subject to daily change.

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The Russell 1000 Growth Index is an unmanaged index that measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted directly in an index. 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.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. Derivative Instruments 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 Portfolio and reduce its returns. Other risks of the Portfolio include, but are not limited to: Liquidity, Company, Currency, Foreign Investments, Market, Other Investment Companies and Securities Lending. Investors should consider the Portfolio’s prospectus and statements of additional information for a more detailed discussion of the Portfolio’s risks. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed 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 does not guarantee future results.