Voya MidCap Opportunities Strategy Quarterly Commentary - 4Q24
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Voya MidCap Opportunities Strategy Quarterly Commentary - 4Q24

Key Takeaways

In the fourth quarter of 2024, the equity markets experienced mixed returns. Domestic large- and small-cap stocks delivered positive returns, while value indices and international markets saw declines. Cyclical sectors, such as consumer discretionary, financials and technology, outperformed defensive sectors. Growth factors led performance, while value factors declined. 

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

The outlook for equities in 2025 is cautiously optimistic as the U.S. economy remains strong and the Trump administration is expected to implement favorable policies in terms of deregulation and taxes. However, risks such as tariffs, inflation and geopolitics may result in volatility.

Actively managed mid-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 continued their upward trajectory during the fourth quarter following Donald Trump's presidential victory with the S&P 500 Index rising by 2.41% and the Nasdaq Composite advancing by 6.17%. The consumer discretionary and communication services sectors led, while materials and healthcare lagged. Large cap stocks outperformed small caps, and growth stocks significantly beat value stocks. 

The U.S. bond market struggled during the quarter on concerns about sticky inflation and the U.S. Federal Reserve's more conservative rate-cut path. The Bloomberg U.S. Aggregate Bond Index declined by 3.06% and the 10-year U.S. Treasury yield rose by more than 80 basis points (bp), ending the quarter at 4.58%. The Fed cut rates by 25 bp in November and December. However, the central bank now projects just two rate cuts in 2025, reflecting a more cautious stance in response to strong economic data.

For the quarter, the Fund underperformed the Index on NAV basis largely due to selection effects. The stock selection effects within the industrials, health care and consumer discretionary sectors were the greatest detractors. Alternatively stock selection within the information technology, communication services and materials sectors contributed to performance.

Key contributors to the quarter's performance were AppLovin Corp., Astera Labs, Inc. and Nu Holdings Ltd.

An overweight position in AppLovin Corp. (APP) contributed to performance. The stock surged in November following a strong earnings report, with revenue significantly surpassing expectations. Additionally, future guidance exceeded analysts' estimates, driven by optimism around the growth of the company's artificial intelligence (AI) software. 

An overweight position in Astera Labs, Inc. contributed to performance this quarter. The company reported strong third-quarter earnings, including its fifth consecutive record quarterly revenue. 

Not owning Nu Holdings Ltd. (NU) contributed to performance this month. The stock declined as concerns grew over Brazil's weakening currency and rising inflation, which could pressure the company's operations. Additionally, Nu Holdings recently undertook a significant investment in a South African digital bank, raising investor concerns about potential overextension. 

Key detractors for the quarter were Monolithic Power Systems, Inc., Coinbase Global, Inc. and Builders FirstSource, Inc. 

An overweight position in Monolithic Power Systems, Inc. (MPWR) detracted from performance. The stock declined following a report which suggested that the company's power management chips would not meet the requirements for use in NVIDIA chips. 

An underweight position in Coinbase Global, Inc. (COIN) detracted from performance this quarter. The stock appreciated in November following the election of Donald Trump, as cryptocurrency values increased. The rise in crypto prices boosted Coinbase's performance, given its role as a leading platform for trading and exchanging digital currencies.

An overweight position in Builders FirstSource, Inc. (BLDR) detracted from performance. The company's stock was negatively impacted by challenging market conditions in the housing sector, driven primarily by rising bond yields, which have increased borrowing costs and dampened demand in the market.

Current strategy and outlook

After months of noise surrounding the U.S. presidential election, markets have now refocused on macroeconomic data, which offer mixed signals. Key concerns include global geopolitical tensions, especially around tariffs and deteriorating sentiment tied to mega-cap positioning and broader market weakness. Despite these challenges, U.S. equities should continue to benefit from robust consumer spending, optimism around AI and solid corporate earnings. U.S. inflation is projected at 2.5% for 2025, but the new administration's policy could reverse the disinflation trend.

Holdings Detail

Companies mentioned in this report percentage of portfolio investments, as of 12/31/24: AppLovin Corp. 4.06%, Astera Labs, Inc. 1.11%, Nu Holdings Ltd. 0.00%, Monolithic Power Systems, Inc. 1.98%, Coinbase Global, Inc. 0.62% and Builders FirstSource, Inc. 1.09%; 0% indicates that the security is no longer in the portfolio. Portfolio holdings are subject to daily change.

Related Resources

Voya MidCap Opportunities Fund Fact Sheet

Related Products

Voya MidCap Opportunities Fund

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The Russell Midcap Growth Index is an unmanaged index that measures the performance of those companies included in the Russell Midcap Index with relatively higher price-to-book ratios and higher forecasted growth values.

Index returns do not reflect fees, brokerage commissions, taxes or other expenses of investing. Investors cannot invest directly in an index.

All investing involves risks of fluctuating prices and the uncertainties of rates of return and yield inherent in investing. Foreign Investing does pose special risks including currency fluctuation, economic and political risks not found in investments that are solely domestic. Investing in stocks of Mid-Sized Companies may entail greater volatility and less liquidity than larger companies. 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. Other risks of the Fund include but are not limited to: Growth Investing Risks; Market Trends Risks; Other Investment Companies Risks; Price Volatility Risks; Inability to Sell Securities Risks; Securities Lending Risks; and Portfolio Turnover Risks. Investors should consult the Fund's Prospectus and Statement of Additional Information for a more detailed discussion of the Fund's risks.

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. 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.

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.

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. Past Performance does not guarantee future results.

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