May 2022 Monthly

In our note, What Volta brings to investors, we explored three things that Volta brings to investors: i) relatively high total returns; ii) a high ongoing income (and we briefly summarised recent reports on cash generation and strong dividend cover); and iii) Volta is uncorrelated to benchmark bonds, an asset class that investors may have considered for income. Volta’s CLO investments may not be to every investor’s taste, and there are risks (Volta marks to market, which is not adopted by all peers); these traits are noteworthy. A €0.15 quarterly dividend (8% NAV annualised) was declared on 16 March 2022. The half-year report to January 2022 was released on 7 April 2022.

• March Factsheet: Monthly asset class performances were +1.4% for CLO equity tranches, +0.8% for CLO debt, +1.0% for Bank Balance Sheet transactions and +0.0% for Cash Corporate Credit and ABS. Overall NAV was up 1.5%, with some additional forex effects. Annualised six-month interest/coupons received were 16.4% of NAV.
• Market outlook: “entered into a period of more uncertainty and higher volatility in financial markets…, it may generate stress with a potential rise in default rates this year and next .. it should also generate opportunities .. buying loans at a discount or new loans with far higher spread and, for Volta being able to purchase BB CLO tranches at an attractive spread.”
• Valuation: Volta trades at a 14% discount to NAV (which is subject to significant external input and oversight). The relative discount to Fair Oaks seems anomalous, as, over the long term, Volta has delivered a better NAV performance. Volta aims for 8% NAV distribution (dividend yield 10.0% 2022E, 10.7% 2023E).
• 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: 8.7% p.a. (dividend reinvested 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.