INVESTMENT MANAGEMENT

Tactical Indicators

Voya Multi-Asset Perspectives

Good Tidings for Investors Heading into Year-End

December 2019

Global equities continued their climb, considerably outperforming bonds through November and the first half of December. Within U.S. stocks, relative returns across the capitalization spectrum were fairly tight. Growth outperformed value but cyclical stocks gained on defensive sectors, which suggests that value may have room to catch up. EAFE and emerging market equities also have done well during the period. Meanwhile, interest-rate sensitive assets such as REITs and long duration debt have lagged.Investor sentiment has brightened substantially since August, as most U.S. and global equity indexes currently trade at or near all-time highs. Underpinning the brighter mood are improved economic data and optimism that trade tensions are subsiding, among other things. The consensus view seems to be that the global growth slowdown bottomed in late summer and now is on the mend. Easing global financial conditions have helped foreign manufacturing sectors stabilize. After bottoming in July, the global PMI index has recorded four straight months of gains, auspiciously moving into expansion territory (Figure 1). As manufacturing

has picked up so have interest rates; the co-movement between them has been close over the past several years; in this case, higher rates and a steeper yield curve may signify a lessening of investors’ recession concerns.U.S. growth has been chugging along around trend for months, while non-U.S. growth generally has shown improvement. With the Conservative Party having won a commanding majority in Britain’s Parliament, we expect a diminishing Brexit drag and modest fiscal policy increases to support a gradual advance in European and UK business activity. Importantly, there has been progress on the United States–China trade war, though the peace is still fragile. The recent “Phase One” trade deal reduced U.S. tariffs on $120 billion of Chinese goods and suspended the planned December 15 tariffs on another $160 billion. The deal also contains commitments from China to increase U.S. agricultural purchases and better protect U.S. intellectual property. Despite this development, we do not anticipate a full-fledged retreat of global trade tensions.

Figure 2. Sentiment has moved back to neutral

Figure 1. Leading financial indicators suggest global economic slowdown has bottomed

Economic Growth (improving):U.S. at trend; early signs of improvement in non-U.S. growth

Fundamentals (neutral):U.S. corporate earnings declined YoY in 3Q19, but corporate balance sheets remain healthy

Valuations (neutral):Non-U.S. equity valuations look more compelling as fundamentals stabilize

Sentiment (neutral):Equity market consolidation in early December moved sentiment readings back to neutral (Figure 2)

Source: JP Morgan, Bloomberg, Voya Investment Management, as of 11/30/2019

48

49

50

51

52

Nov-19Oct-19Sep-19Aug-19Jul-19Jun-19May-19Apr-19Mar-19Feb-19Jan-19Dec-18

Contraction/Expansion ThresholdJPMorgan Global Manufacturing PMI

Source: Bloomberg, Voya Investment Management, as of 12/9/19. The Voya Sentiment Indicator is a proprietary aggregate of various sentiment signals.

543210

-1-2-3

2019 Dec-192018201720162015

oversold

Voya Sentiment Indicator Excessive Fear Threshold

Figure 3. High quality corporate credit has outperformed low quality despite large stock market gains

Source: Bloomberg, Voya Investment Management, as of 11/30/19

-2%0%2%4%6%8%

10%12%14%16%

YTD4Q19 QTD3Q192Q191Q19

Bloomberg Barclays U.S. High Yield Bond Index

Bloomberg Barclays U.S. Investment Grade Corporate Bond Index

Investment grade and high yield corporate bonds, 2019 YTD returnsGlobal manufacturing activity is picking up

Voya Multi-Asset Perspectives | December 2019

Investment Outlook Although investors’ penchant for risk has been on the rise, the return dispersion within corporate credit shows a persistent preference for higher quality, lower volatility assets (Figure 3). This reflects a dichotomy in market participants’ mindset: economic fundamentals are improving, yet there remain significant, highly unpredictable risks that could derail the rally at any moment. A similar dichotomy appears in the equity markets, with growth and defensive stocks outperforming value and cyclical stocks. Equity group leadership has been more volatile, however, and not necessarily correlated. In recognition of this unusual price behavior, our portfolio overweight to equities continues to be fortified by high-grade fixed income holdings. Although we have transitioned some of our regional equity allocations to more cyclically-sensitive asset classes, we believe investment grade bonds are a better short- to medium-term bet than high yield.

The majority of the 2019 rise in U.S. equity markets has come from multiple expansion. With near peak profit margins and weak aggregate profit growth, further multiple expansion is the most likely source of future gains. As long as the economic data remain stable the Federal Reserve is unlikely to ease policy in the next few months. Nevertheless, we expect relatively easy financial conditions and a healthy consumer will lead to modest increases in economic growth. In such an environment, we believe U.S. equities have room to move higher.

We also see international equities, both developed and emerging markets, which have cheaper valuations and are more leveraged to global growth, as increasingly attractive. We think Europe and the UK should benefit from subsiding Brexit uncertainty, and Japanese stocks could get a boost from new fiscal stimulus through additional public infrastructure spending. With respect to emerging markets, the combination of languishing performance versus the U.S. and our expectations for an uptick in global growth and a softening of U.S. dollar strength will enable EM to deliver decent near-term returns.

After a tremendous run in equities and more than a decade without a U.S. recession, we expect muted, albeit positive forward returns. Our models suggest that the upside for stocks is limited and the outcome tails are fatter on the downside. With our base-case path higher, but asymmetry on the downside, we maintain a cautiously bullish posture. The high quality theme applies to both credits and loans in the fixed income portions of our portfolios. The objective has been to reduce risk in bond portfolios to offset some of the added risk taken in the equity portfolio, where we see more alpha opportunities. Fortunately, the positioning not only has reduced volatility, but also has increased excess returns. With a high demand for yield, a strong technical backdrop and fluctuating sentiment, we could see more momentum and tighter spreads to close out the year.

2

Portfolio PositioningEquities

U.S. Large Cap Reasonable valuations and resilient earnings create relative attractiveness versus fixed income

U.S. Mid Cap Late cycle and full valuations offset decent, near-term earnings outlook

U.S. Small Cap Valuations compared to large cap are alluring, but susceptible to increasing operating costs because of high leverage

International Equities Signs of improving global growth, shorter political tail risks and relatively attractive valuations versus U.S. stocks support our move back to neutral

Emerging Markets Equities Easy financial conditions in China and U.S., improving growth outlook and expectations for range-bound U.S. dollar lead us to add back EM equities

REITS May act as a buttress during high levels of volatility due to their yield attractiveness and healthy fundamentals, but cap rates are low

Fixed Income

U.S. Core Fixed Income We favor quality investment grade bonds over high yield given the late stages of the credit cycle and move to a neutral duration posture

Non-Investment Grade Favor high quality fixed income; tight spreads, illiquidity concerns and limited yield advantage make loans more attractive than high yield

International Fixed Income Low absolute and relative yields lead us to favor U.S. bonds

Underweight Neutral Overweight

©2019 Voya Investments Distributor, LLC • 230 Park Ave, New York, NY 10169 • All rights reserved.

CMMC-MAP-1219 122719 • IM1043337 • WLT250002095

Voya Multi-Asset Perspectives | December 2019

Past performance does not guarantee future results.

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. Fund holdings are fluid and are subject to daily change based on market conditions and other factors.

Voya Investment Management Co. LLC (“Voya”) is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) (“Act”) in respect of the financial services it provides in Australia. Voya is regulated by the SEC under U.S. laws, which differ from Australian laws.

This document or communication is being provided to you on the basis of your representation that you are a wholesale client (within the meaning of section 761G of the Act), and must not be provided to any other person without the written consent of Voya, which may be withheld in its absolute discretion.

Multi-Asset Strategies and Solutions Team

Voya Investment Management’s Multi-Asset Strategies and Solutions (MASS) team, led by Chief Investment Officer Paul Zemsky, manages the firm’s suite of multi-asset solutions designed to help investors achieve their long term objectives. The team consists of 26 investment professionals who have deep expertise in asset allocation, manager selection and research, quantitative research, portfolio implementation and actuarial sciences. Within MASS, the asset allocation team, led by Barbara Reinhard, is responsible for constructing strategic asset allocations based on their long term views. The team also employs a tactical asset allocation approach, driven by market fundamentals, valuation and sentiment, which is designed to capture market anomalies and/or reduce portfolio risk.

Paul Zemsky, CFA Chief Investment Officer, Multi-Asset Strategies

Barbara Reinhard, CFA Head of Asset Allocation,Multi-Asset Strategies