Voya Strategic Income Opportunities Fund Quarterly Commentary - 4Q25
Unconstrained and flexible approach, investing broadly across the global debt markets.
Portfolio review
The final quarter of 2025 opened under the cloud of a government shutdown, which delayed key labor and inflation data and forced policymakers and investors to rely on secondary indicators. While the economic impact was modest, the lack of transparency added uncertainty and weighed on market sentiment. Credit markets also faced idiosyncratic shocks: subprime auto lender Tricolor filed for Chapter 7 amid allegations of double pledged collateral, and First Brands Group collapsed under tariff pressures and internal misconduct. At the same time, robust corporate investment in AI and data center infrastructure drove heavy issuance, causing credit spreads to widen from historically tight levels before retracing as supply normalized. These dynamics fueled ongoing debate about whether enthusiasm around AI spending could be signaling early signs of overexuberance.
Trade tensions, particularly with China, remained a persistent backdrop but did not escalate materially. Once official data resumed, it confirmed labor market cooling, with two weaker payroll reports. Inflation remained elevated but stable, allowing the U.S. Federal Reserve to deliver two rate cuts in 4Q25 while maintaining a cautious tone going forward.
Against this environment, fixed income markets generally performed well: front end rates declined, and credit sectors delivered modest excess returns.
For the quarter, the Fund outperformed the Index on a NAV basis. Sector allocation decision contributed to relative performance, with our allocation to non-agency residential mortgage-backed securities (RMBS) being the largest individual contributor. Similarly, our overweight to agency mortgage-backed securities (MBS), which was tactically adjusted throughout the quarter, was also a strong contributor. However, this was counterbalanced by our security selection choices in agency MBS, since our collateralized mortgage obligations (CMO) holdings did not keep pace with the performance experienced in pools. Lastly, duration and yield curve positioning contributed to performance given our long relative duration position.
Current strategy and outlook
We expect growth to move above trend, supported by easier financial conditions and a housing recovery. While labor market softness and tariffs remain headwinds, pro-business policies, tax cuts, and deregulation, should offset them. Crucially, stronger growth should not reignite inflation: the prior surge was driven by fiscal stimulus, unlikely to repeat, and firms face weaker pricing power as wage growth cools and consumers stay price sensitive.
Labor dynamics will be pivotal. Near term job growth should remain muted amid cyclical weakness and policy uncertainty, yet structural constraints, lower immigration, and declining participation, will limit downward pressure on wages even with elevated unemployment. This suggests a period of “jobless growth,” with output expanding despite subdued hiring.
AI will continue to shape markets. Corporations are investing heavily in AI capabilities and data center infrastructure, driving debt issuance. While AI could eventually lift long term growth, the slow realization of productivity gains will periodically challenge valuations. We do not see an AI bubble today, but the scale of capital formation demands disciplined underwriting and security selection.
Central banks remain pivotal. The Fed is one of the few developed market banks likely to keep cutting rates to prevent further labor market deterioration despite inflation above target. In fixed income, elevated yields offer opportunities. We favor shorter spread duration for carry and view duration, especially at the front end, as an effective hedge as inflation concerns fade. Overall, disciplined positioning should support strong risk adjusted returns in this “golden age of income.”
Key Takeaways
The fourth quarter of 2025 was defined by policy uncertainty stemming from the government shutdown, with additional turbulence sparked by bankruptcies and a surge in artificial intelligence (AI)-driven investment.
The Fund outperformed its benchmark, the ICE BofA USD 3M Deposit Offered Rate Constant Maturity Index (the Index), on a net asset value (NAV) basis. Sector allocation along with duration and curve positioning contributed over the period, while security selection results detracted.
Looking ahead to 2026, growth is expected to accelerate, supported by easier financial conditions and strong investment in AI, but labor market softness and tight spreads will require disciplined risk management and security selection.