January 2021 Monthly

Volta offers investors a big dividend yield uplift because of six income yield uplifts its business delivers. These include i) structured debt yield better than mainstream debt; ii) CLO yield advantages over structured debt; iii) Volta’s flexible mandate and yield advantage over the CLO market as whole; iv) current re-investments at an above-average yield advantage over the market; v) re-investment offering a material pick-up against maturing business; and vi) the potential further pick-up in Volta’s dividend as its assets’ valuations approach expected cashflows rather than having sentiment-driven discounts. The NAV discount appears anomalous to these returns.

• Volta monthly report: In Nov’20, Volta’s NAV rose by 7.2% (YTD -10%). CLO debt was up 10% and equity tranches up 11% (77% of portfolio), bank balance sheet transactions fell 1% (10%). Volta noted more upgrades than downgrades in the US loan market. Six-month rolling cashflow was 15% yield on NAV.
• Outlook: Volta has seen a sharp re-bound in NAV since end-March 2020 (€5.06 to €6.51 p/share end-November), and its dividend has yet to catch up with the rising NAV. We believe further NAV accretion is likely as residual sentiment unwinds, which would increase the dividend even further.
• Valuation: Volta trades at a 16% 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 9.5% 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.