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.
Key Takeaways
- Markets finished the year with continued volatility, with stocks rallying in October and November before falling again in December to close out the year. The US Federal Reserve continued hiking rates in an attempt to ease inflationary pressures, and questions remain as to whether or not taming inflation will lead to recession. The Ukraine and Russia conflict also remains a factor for the global economy.
- For the quarter, the Strategy underperformed its benchmark, the Russell 1000 Growth Index (the Index), on net asset value (NAV), due to unfavorable stock selection, particularly within the information technology sector.
- While inflation appears to have peaked and the Fed has shown signs of moderating its aggressive rate hikes, we are entering into a new phase of uncertainty regarding the likelihood of a recession, as well as its potential magnitude. If and when the Fed pivots on rates may determine if the kind of volatility, we have seen will continue into 2023.
Portfolio Review
The major US and non-US stock Indexes overcame negative returns in December to end the fourth quarter with gains. US stock results varied by market capitalization: Midcaps were the strongest performers, followed by large caps, then by small caps. Across market cap segments, value styles outperformed growth styles. Technology stocks continued to suffer from rising interest rates and posted losses for the quarter.
Broad gauges of US and non-US bonds posted gains for the quarter, though non-US bonds gained more than twice as much as US bonds. Results varied at the asset-class level: Long-term US Treasury securities sustained the largest losses, whereas long-term corporate bonds and high yield were among the strongest performers. Shorter-term corporate bonds and government securities saw positive returns.
For the quarter ended December 31, 2022, the Strategy underperformed the Index on NAV basis due to unfavorable stock selection. Allocation effects and stock selection in consumer discretionary contributed the most to performance. Unfavorable stock selection in the information technology, and to a much lesser extent, materials, sectors detracted the most from performance.
Key contributors to performance were Tesla, Inc., DexCom, Inc. and Boston cientific Corp.
An underweight position in Tesla, Inc. (TSLA) contributed to performance. Demand has softened and the company is facing competitive challenges in both the United States and China heading into 2023. In addition, CEO Elon Musk’s purchasing Twitter remains a distraction that investors are getting weary of.
An overweight position in DexCom, Inc. (DXCM) contributed to performance. The company reported strong quarterly results and raised the lower end of its full year guidance. DXCM also announced the Food and Drug Administration (FDA) approval of its G7 device for diabetes management.
Owning a non-benchmark position in Boston Scientific Corp. (BSX) contributed to performance. The company has experienced durable growth, with an increase in organic revenue and market share. In addition, BSX has spent more on research and development (R&D) than its peers, which should be an advantage in new product initiatives.
Key detractors from performance were CrowdStrike Holdings, Inc., Palo Alto Networks, Inc. and Mastercard Inc.
An overweight position in CrowdStrike Holdings, Inc. (CRWD) detracted from performance. The company reported a mixed quarter, and a weak economic environment is causing delayed deals and longer sales cycles. CRWD had their first ever annual recurring revenue (ARR) miss and also provided light guidance.
An overweight position in Palo Alto Networks, Inc. (PANW) detracted from performance. Macro challenges have contributed to slower next generation expansion and some uncertainty around the timing of large deals.
Not owning a position in Mastercard Inc. (MA) detracted from performance. The company reported positive results, with both earnings and revenue exceeding expectations. Cross-border revenue growth was better-than-expected as travel has continued to recover, and consumer spending remains resilient.
Current Strategy and Outlook
Investors can be forgiven for wanting to put 2022 in the rearview mirror. High inflation, rate hikes, market volatility, the war in Ukraine and resurging Covid infections top the list of things we would like to move past. Will 2023 bring more troubles, or do investors have reasons for optimism? The Eurozone appears to be headed for a recession, whereas the US seems slightly less at risk. The markets are hunting for imbalances, such as whether China’s return to growth will be stymied by its significant debt burden. There is at least one reason for optimism: The end of the global interest-rate hiking cycle may be in sight, letting markets focus more on economic fundamental factors.
Holdings Detail
Companies mentioned in this report – percentage of Strategy investments, as of 12/31/22: Tesla, Inc. 0.71%, DexCom, Inc. 2.18%, Boston Scientific Corp. 2.01%, CrowdStrike Holdings, Inc. 0.64%, Palo Alto Networks, Inc. 1.43% and Mastercard Inc. 0%; 0% indicates that the security is no longer in the portfolio. Portfolio holdings are subject to daily change.
Voya Large-Cap Growth Fund Quarterly Commentary - 4Q22