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Volta Finance

Volta Finance – June 2019 Monthly

03 Jun 2019 / Corporate research

On 21 March 2019, we published a review, entitled Manager’s March 2019 presentation. The key takeaways were i) the flexible mandate means it can exploit whichever element of the CLO market offers the best opportunity – this is likely to see further allocations to CLO equity tranches in the near term, ii) the credit cycle is likely to turn, but this should be gentle, and creates re-investment opportunities, and iii) the flexible mandate and significant cash generation from coupons, dividends and maturities mean that the portfolio can be quickly re-positioned if market conditions change. This note follows our 14 January 2019 review, Investment Opportunities at this point of the cycle.

  • Volta monthly report: In April, Volta’s NAV rose 1.9% (YTD 6%), taking it to €8.02 per share. The monthly performance by major asset class were CLO Equity tranches (+3.0%), bank balance sheet transactions (+0.9%) and CLO debt tranches (+0.4%). The performances of Volta’s other asset classes in local currencies were +0.5% for Cash Corporate Credit deals and +1.1% for ABS.
  • Peers’ April reports: Blackstone GSO Loan Financing’s (MTM valuation) € NAV was up 1.25% (YTD 1.7%). Fair Oaks Income’s $ NAV was up 2.16% (YTD 4.1%). Marble Point saw a 4.05% $ NAV increase (YTD 12.09%). TwentyFour Income Fund’s £ NAV rose 0.44% (YTD 1.96%). Carador is in wind-up . We reviewed Volta and its peers in our 25 February 2019 report, Diving deep finds you the treasure.
  • Valuation: Volta trades at a 13% discount to NAV. Peer-CLO finance funds trade at a ca.7% discount. 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 5 Sept 2018 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 could be sentiment-driven, share price volatility. However, long-term returns have been good: ca.10% p.a. (dividend re-invested basis) over five years. The current portfolio-expected NAV return is over 10%. The historical yield is 8.9%, and we believe is covered by predictable income streams in 2019E.
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