September 2024 Monthly

Volta’s latest monthly is to its financial year of end-July. The FY’24 NAV total return was 19.7% and annualised cash receipts are 22% of the Jul’24 NAV, boding well for the near-term outlook. They are also consistent with levels seen since mid’22. For 16 consecutive months, Volta has generated positive NAV returns. We note both positive markets and incremental value added by the manager, AXA IM. To put Volta’s returns into perspective, YTD to end-July, Volta has generated a +10.8% total NAV return, over twice the level of US and Europe high-yield debt markets, both of which returned ca.4.5%. The discount appears anomalous with such a performance and the resilience of the underlying NAV we have discussed in previous reports.

• Positive CLO markets: We believe investors should “follow the cash”. Receipts into CLO structures have been strong with low default rates from good corporate profitability and cashflows, and many borrowers being able to pass on initial inflationary pressures to customers. Cash leaving CLO structures reflects refinancing and resetting opportunities in CLO debt.
• Value added by AXA IM: AXA IM scale brings i) specialist expertise to identify mis-priced opportunities and manage risk, ii) a broad network with informational advantages, and iii) business introduction and pricing opportunities. We also highlight its portfolio construction/asset selection.
• Valuation: Volta trades at a double discount: its share price is at a 27% discount to NAV, and we believe its mark-to-market approach includes a sentiment-driven discount to the expected cashflows. Volta targets an 8% of NAV annual dividend, with €0.145 announced for the most recent quarter (10.2% 2024E investor yield).
• Risks: Credit risk is a key sensitivity. We examined the valuation of assets, highlighting the multiple controls to ensure its validity, in our initiation note, in September 2018. The NAV is exposed to sentiment towards its own and underlying markets. Volta’s long $ position is only partially hedged.
• Investment summary: Volta is an investment for sophisticated investors, as both the NAV and the discount to NAV may be volatile over time. We note the closest competitor to Volta has had a more stable NAV valuation due to a different asset valuation approach. Fundamental long-term returns have been robust: 8.0% p.a. (dividend reinvested basis) since inception. Volta’s performance relative to that of its peers has been strong, and returns for investments made after the financial crisis were double those in prior years.