February 2021 Monthly

As we outlined in our 11 January 2011 report, Volta’s seven yield uplifts, Volta’s model generates yield uplifts from i) structured debt yield better than mainstream debt, ii) CLO yields are above structured debt, iii) Volta’s flexible mandate earns a yield over the CLO market, iv) re-investments are at an above-average spread over the market, v) re-investment offers a material pickup against maturing business, and vi) the potential further pickup in Volta’s dividend as its assets’ valuations approach expected cashflows, rather than having sentiment-driven discounts. These support its high dividend yield. The NAV discount appears anomalous to these returns.

• Volta monthly report: In December 2020, Volta’s NAV rose 4.3% (YTD -6%). CLO debt was up 6%, and equity tranches were up 10% (81% of portfolio). Other positions showed small gains and losses. On a six-month rolling basis, Volta received income of €18.1m, a 14.8% annualised cashflow yield on the current NAV.
• Outlook: High repayments in 2020 meant Volta’s CLO investments could re-invest at wider spreads. Current pricing offers the opportunity for CLO issued debt to refinance at lower rates, generating a positive outlook for CLO equity valuations. We also note that the trailing 12-month default rate declined in the US.
• Valuation: Volta trades at a 14% discount to NAV (which is subject to significant external input and oversight). The relative discounts to Fair Oaks and Marblepoint seem anomalous, as, over the long term, Volta has delivered a better NAV performance. Volta aims for 8% NAV distribution (on current discount 9.2% yield).
• Risks: Credit risk is a key sensitivity (Volta has a widely diversified portfolio). We examined the valuation of assets, highlighting the multiple controls to ensure its validity, in our initiation note. NAV is affected by 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 reflect sentiment. This may be expected to normalise over time, and we note that BGLF’s model-based approach saw its NAV drop by only a third that of Volta in March 2020. Fundamental long-term returns have been good: pre-COVID-19, ca.11% p.a. (dividend re-invested basis) over five years. Volta’s performance relative to its peers has been strong, and returns for investments made after the financial crisis were double those in prior years.