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On 14 January, we published a review entitled Investment opportunities at this point of the cycle. We aimed to provide a balanced view between the threats and opportunities Volta faces at this stage of the cycle. While MTM losses are likely to increase, and some of the market prices of Volta’s holdings will not reflect their long-term value, there are upsides. We note that (i) spreads are likely to widen, (ii) more mis-pricing opportunities are likely to emerge, (iii) Volta has a broad diversification and a good credit track record, and (iv) its profile is very different from 2007-08. The long-term cashflows on which dividends depend may increase, not decrease.

  • Volta monthly report: In December, Volta’s NAV fell 4.8%, taking it to €7.71 per share and the YTD performance to 0.1%. In volatile markets, the key local currency MTM performances were CLO equity tranches -5.7% (33% of portfolio) and CLO debt tranches -5.9% (39% of portfolio). As expected, the Bank Balance Sheet Transactions (15% of portfolio) have less volatility and fell by just 0.4%.
  • Peers’ December reports: Carador saw a 9.1% fall in its $ NAV (YTD -10.5%). It is now in wind-up mode. Fair Oaks Income’s $ NAV was down 1.2% (1 year +0.5%). Blackstone GSO Loan Financing said that its more marked to model € NAV was flat (YTD +6.7%). TwentyFour Income Fund’s £ NAV fell 0.1% (YTD +2.33%). Marble Point reported a 4.98% $ NAV monthly loss (-13.04% since February IPO).
  • Valuation: Volta trades at a 12% discount to NAV. Peer-structured finance funds trade at a ca.4% discount, with one at a premium of 0.4% over NAV. In recent months and over the medium term, Volta has delivered a better NAV performance than its immediate peers and in-line volatility, making this discount anomalous.
  • 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 there may be sentiment-driven, share price volatility. However, long-term returns have been good: ca.11% p.a. (dividend re-invested basis) over five years. The current portfolio expected NAV return is over 10%. The historical yield is 9.1%, and we believe is covered by predictable income streams in 2019.
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