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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Maintains a neutral risk stance across diversified leveraged credit and CLOs, capitalizing on elevated all-in yields and floating-rate resilience while navigating rate volatility and macro headwinds."
The Touchstone Ares Credit Opportunities Fund outperformed its benchmark, the ICE BofA U.S. High Yield Constrained Index, during the third quarter of 2026, delivering a net return of -1.75% for Class A Shares (Load Waived) compared to -1.82% for the benchmark, bringing year-to-date net performance to -0.30%. Relative outperformance was driven by both asset allocation and high-yield bond security selection, with floating-rate credit providing stability amid sharp Treasury rate volatility. Conversely, the fund's equity sleeve detracted due to issuer-specific developments. Credit positioning shifted modestly as BB/Ba exposure rose to 43.7% and single-B exposure increased to 32.5%, while BBB/Baa debt dropped to 6.0% and CCC exposure held steady at 9.1% across an expanded base of 303 issuers. The broader market backdrop reflected mixed macro signals characterized by resilient economic growth and solid labor conditions countered by sticky inflation, elevated energy prices tied to Iranian geopolitical conflicts, and interest-rate volatility following a 25 basis point Federal Reserve rate hike in September. High-yield spreads remained tight by historical standards, though benchmark yield levels widened to 8.3% in bonds and 9.6% in syndicated loans following a 50 basis point parallel shift in the Treasury curve. Portfolio management maintains a neutral risk posture, balancing modest overweights in lower-rated credits against higher-quality anchors and diversified allocations across CLO debt, CLO equity, and bank loans. The management team remains disciplined, deploying capital selectively into secondary-market relative value opportunities while navigating sector dispersion stemming from technological disruption.
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