Goldman Sachs High Yield Instl (GSHIX) N-CSRSCertified semi-annual shareholder report (management investment company)

Overall, the global capital markets struggled during the Reporting Period. The MSCI World Index returned -11.30%; the MSCI Emerging Markets Index returned -14.15%; and the Bloomberg Global Aggregate Index returned -11.69%. The Russell 1000^® Value Index returned -3.95% and the ICE BofAML BB to B US High Yield Constrained Index returned -7.16% for the Reporting Period.

As the Reporting Period began in November 2021, developed markets equities, as measured by the MSCI World Index, and emerging market equities, as measured by the MSCI Emerging Markets Index, were resilient despite elevated U.S. inflation data. However, with the emergence of the COVID-19 Omicron variant and concerns around tighter monetary policy from the U.S. Federal Reserve (the “Fed”) at the end of the month, global equities experienced a sharp sell-off, more than erasing earlier month gains, and bond yields declined. High yield corporate bonds edged down, as investor sentiment was challenged by interest rate volatility, softer oil prices, concerns about the Omicron variant and high levels of supply.

After a weak November, global equities recovered strongly in December 2021 and bond yields generally rose, as financial markets proved rather immune to rising COVID-19 cases due to the lower severity of the Omicron variant and in line with healthy economic growth globally and expectations of tighter monetary policy in the U.S. and Europe. High yield corporate bonds posted modest gains as investor risk appetite improved.

In response to higher inflationary pressures, the U.S. Fed signaled a more aggressive interest rate hike path than it had previously indicated and announced its plan to double the pace of its asset purchase tapering beginning in January 2022.

Entering 2022, the rapidly evolving outlook for inflation and Fed policy had already complicated the macroeconomic outlook, but the February Russian invasion of Ukraine significantly increased uncertainty and volatility.

For the first quarter of 2022 overall, valuations declined broadly across multiple asset classes. Credit spreads widened as bond yields simultaneously rose in response to inflationary pressures. Against this backdrop, high yield corporate bonds retreated. Global equities, both in the developed and emerging markets, declined significantly.

Fed officials raised short-term interest rates by 25 basis points in March, the first U.S. rate hike since the end of 2018. (A basis point is 1/100^th of a percentage point.) Fed officials also forecast six more increases by the end of 2022.

Elsewhere, the Bank of England and Norway’s central bank raised their policy interest rates. The European Central Bank (“ECB”) delivered a hawkish message but did not hike rates, signaling its asset purchases would conclude in the third quarter of 2022 and suggesting to many that ECB policymakers were more focused on upside inflation risks than on downside economic growth risks.

April 2022 proved to be another difficult month for capital markets, as both equities and fixed income markets were down sharply, pressured by sustained high inflation, hawkish central banks and the prolonged conflict in Ukraine. (Hawkish tends to suggest higher interest rates; opposite of dovish.)

Overall, U.S. equities struggled during the Reporting Period. The Standard & Poor’s 500 Index (the “S&P 500 Index”) ended the Reporting Period with a return of -9.65%. The Russell 3000^® Index generated a return of -11.75%.

Persistent supply-chain disruptions, hawkish Fed policy and inflationary pressures remained the common themes during the Reporting Period, while the biggest headlines were the COVID-19 variants and the start of the yet ongoing Russia/Ukraine war.

As the Reporting Period began in November 2021, the S&P 500 Index fell, though retail earnings upside surprises and hints of easing supply chain constraints supported the U.S. equity market’s upward trajectory through most of the month.

Later in November, a $1 trillion infrastructure bill was signed into law, and Fed Chair Powell was appointed for a second term, bringing clarity to the Fed’s leadership.

However, renewed concerns around COVID-19 developments pressured U.S. equities, with the emergence of the more contagious Omicron variant triggering a sell-off. Persistently high inflation also weighed on market sentiment.

In December, the S&P 500 Index rebounded despite record COVID-19 case counts in many population centers in the U.S., as studies showed the variant was generally accompanied by milder symptoms than previous variants.

Positive seasonality and the so-called “Santa Rally” also lifted the S&P 500 Index towards the end of the month.

The Fed walked back its use of “transitory” in describing the inflationary environment, announced it would double its pace of asset purchase tapering and indicated potential interest rate hikes in 2022.

The S&P 500 Index fell in the first quarter of 2022, marking its first quarterly decline since the first quarter of 2020.

The dramatic repricing of the Fed’s interest rate hike path and expectations for a more aggressive balance sheet runoff phase were accelerated due to concerns about elevated and persistent inflation pressures.

Tensions arising from geopolitical conflict, most notably Russia’s invasion of Ukraine, also brought about concern, as commodity prices became volatile and the global supply chain came back into question.

Dampened corporate earnings momentum, the velocity and magnitude of the U.S. Treasury yield increase, and the overhang of the Omicron variant bringing about supply chain issues and worker shortages further played into the bearish narrative during the quarter.

In April 2022, the S&P 500 Index decreased, as U.S. equities remained under pressure, ending the month with its worst one-day return since June 11, 2020 and in correction territory.

First quarter inflation, as measured by the Consumer Price Index, was reported in April, with the 8.5% year-over-year increase marking the largest 12-month advance since December 1981.

Later in the month, Fed Chair Powell confirmed a 50 basis point interest rate hike was on the table for May 2022 and that the Fed was expected to formally announce the start of its balance sheet runoff.

Geopolitical overhang brought concern, as it affected energy prices, leading, in turn, to low consumer sentiment and potentially changing consumer spending trends.

Moreover, tightening financial conditions, spans of yield curve inversion (meaning short-term U.S. Treasury yields were higher than longer-term U.S. Treasury yields) and negative real wage growth dynamics drove some recession talk.

China’s unwillingness to deviate from its zero-tolerance approach to COVID-19 and related lockdowns affecting supply chains as well as labor shortages and negative U.S. Gross Domestic Product growth for the first quarter of 2022 were also prevalent themes for the month even as the U.S. labor market remained strong and early corporate earnings reports highlighted a number of positive themes.

For the Reporting Period overall, all segments of the U.S. equity market declined, but value stocks significantly outperformed growth stocks across the capitalization spectrum in part as a potential byproduct of anticipated higher interest rates in the near term.

The best performing sectors within the S&P 500 Index during the Reporting Period were energy, consumer staples, utilities and materials, while the weakest performing sectors were communication services, consumer discretionary, financials and information technology.

During the Reporting Period, commodity prices saw significant strength, with West Texas Intermediate (“WTI”) crude oil and natural gas prices up 30.60% and 33.51%, respectively.

Early in the Reporting Period, commodity prices moved higher, as the market reacted to an emerging “energy crisis” amid rebounding economic activity and disciplined commodities supply.

Later in November 2021, concerns around the spread of the COVID-19 Omicron variant drove a brief but sharp sell-off in commodities and energy-related equities. The spread of the Omicron variant raised concerns about the potential impact on near-term demand. However, data suggested that although highly transmissible, the variant was “less severe,” which ultimately helped ease market fears.

Despite the brief sell-off, the fundamental backdrop for commodities remained strong heading into 2022.

U.S. oil demand continued to tick higher, and supply struggled to keep pace given years of upstream¹ capital expenditure cuts, strong discipline from OPEC+² and U.S. producers remaining focused on maximizing free cash flow.

This dynamic ultimately led to undersupplied energy markets, which were exacerbated by the Russian invasion of Ukraine on February 24^th, given Russia’s position as a major global exporter of crude oil and natural gas.

Following the invasion of Ukraine, crude oil prices reached $128 per barrel — their highest level since 2008 — and continued to experience significant volatility through the end of the Reporting Period driven by developments surrounding the Russia/Ukraine conflict, the possibility of a European Union ban on Russian oil and potential oil demand-side concerns stemming from rising COVID-19 cases and lockdown procedures in China.

While the midstream³ energy markets traded alongside the volatility in crude oil prices during April 2022, driven by geopolitical developments and China lockdown procedures, the sector continued to outperform the broader U.S. equity markets.

For the Reporting Period as a whole, midstream energy markets moved higher alongside strong commodity prices.

The Alerian MLP Index⁴, which measures energy infrastructure master limited partnerships (“MLPs”), and the Alerian Midstream Energy Index⁵, which measures the broader midstream sector inclusive of both energy MLPs and “C” corporations, generated total returns of 13.70% and 13.90%, respectively, during the Reporting Period, significantly outperforming broader equity markets, as represented by the -9.65% return of the S&P 500 Index.

In our view, midstream fundamentals remained, at the end of the Reporting Period, the healthiest on record.

Management teams were no longer prioritizing growth and instead focusing on capital discipline, balance sheet strength, and above all, generating free cash flow and returning it back to investors via dividends and buybacks.

At the same time, from a valuation perspective, the midstream sector screened as inexpensive, trading at a 3.1x discount to the S&P 500 Index on an enterprise value/earnings before interest, taxes, depreciation and amortization (“EBITDA”) basis, which was far below the long-term average premium of 1.2x versus the S&P 500 Index.

The midstream sector continued to offer some of the highest yields in the equity asset class at the end of the Reporting Period, with the Alerian MLP Index yielding more than 7%, which was five times that of the S&P 500 Index and twice the yields of both utilities and real estate investment trusts.

Strong oil and natural gas prices supported earnings momentum across the sector with the majority of the top U.S. midstream companies beating consensus EBITDA expectations for the fourth quarter of 2021.⁶

The midstream sector benefited, we believe, not only from this constructive fundamental backdrop during the Reporting Period but also from technical factors including strong money flows from energy equity investors.

Effective January 3, 2022, Alexandra Wilson-Elizondo became a portfolio manager for the Fund, joining Ashish Shah, Ron Arons, Collin Bell, Charles “Brook” Dane and Neill Nuttall.

While posting disappointing absolute returns, the Fund outperformed its benchmark, the Standard & Poor’s^® 500 Index (with dividends reinvested) (the “S&P 500 Index”), on a relative basis during the Reporting Period.

The Fund’s dividend-paying investments outperformed the S&P 500 ex-Energy Index, the benchmark used for the dividend-paying growers portion of the Fund, during the Reporting Period.

While sector allocations are the result of stock selection in the dividend-paying growers portion of the Fund, having an average underweight in communication services was a significant positive contributor to relative returns during the Reporting Period. Effective stock selection in the communication services, information technology and materials sectors also added notable value.

These positive contributors were only partially offset by having an average underweight position in the utilities sector and by weaker stock selection in the utilities, financials, industrials, consumer staples and health care sectors, which detracted from relative performance during the Reporting Period.

Further, not holding certain individual stocks that outperformed the S&P 500 ex-Energy Index during the Reporting Period —including Apple, Berkshire Hathaway, Johnson & Johnson, Procter & Gamble and AbbVie — dampened relative results.

The Fund’s MLP & Energy Infrastructure Sleeve outperformed the Alerian MLP Index, the benchmark used for the MLP & Energy Infrastructure Sleeve of the Fund, during the Reporting Period.

Relative overweights to the gathering & processing and integrated sub-industries contributed most positively. These sub-industries benefited from the strong recovery in crude oil and natural gas liquid prices during the Reporting Period given that these sub-industries are close to the wellhead and therefore tend to be sensitive to commodity price movements.

Stock selection in and a relative underweight to the pipeline transportation/petroleum sub-industry added value as well. This sub-industry benefited from the strong commodity backdrop but to a lesser degree, as the companies within this sub-industry generally have lower commodity price beta, or volatility of returns relative to the overall market. Our focus within the sub-industry was on what the Goldman Sachs Energy Infrastructure & Renewables Team viewed as high quality companies with strong dividend/distribution coverage, cash flow growth potential, a robust outlook for free cash flow generation and a healthy balance sheet.

These positive contributors were only partially offset by having an overweight exposure to the power generation sub-industry, particularly renewable power generation companies, which detracted. During the Reporting Period, concerns around inflation and higher U.S. interest rates drove a broad rotation from growth to value stocks, which ultimately weighed on the clean energy sector, including renewable power generation companies.