May 2021 Monthly

Volta released its interim results (to end-January) on 8 April. We particularly draw investors attention to CLO-equity enhancement, which is likely if they re-finance their debt at a lower cost. This is estimated to enhance Volta’s returns by 1-1.5% p.a. for several years as the new debt locks in long-term benefits (see p.5-6 of the report). Volta also details its ESG credentials. Our numbers reflect higher interest and coupons, the latest returns, a lower management charge and the performance fee. Volta’s dividends are supported by cashflows, which, on a six-month, rolling basis, represent an annualised 16.3% of March NAV. Discount to NAV has been reducing but is still 15%.

• Volta monthly report: In March 2021, Volta’s NAV increased by 1.1% (YTD 6.1%). By asset type, it was +1.6% for CLO equity tranches, -0.9% for CLO debt, +3.2% for Cash Corporate Credit deals (this bucket has a one-month delay in publishing its NAV), +0.6% for Bank Balance Sheet transactions and -1.3% ABS.
• Monthly commentary: Performance was driven by the solid performance from CLO equity tranches against a backdrop of variable broad credit markets, and $ appreciation. Volta’s investments are mainly floating rate, so the negative impact of rising long-term rates was largely avoided.
• Valuation: Volta trades at a 15% 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 (8.6% yield on current share price).
• 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: 8,6% p.a. (dividend re-invested basis) since inception. 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.