September 2023 Monthly

In previous notes, we have highlighted why current conditions have a number of favourable aspects (see Strong current position below). The July factsheet reported a 15.2% YTD NAV return. Performance has been driven by “the carry of the CLO asset class (c.92% of Volta’s assets excluding cash), both from strong CLO Equity distributions as well as from the continued increase in base rates (Euribor and Libor/SOFR) for CLO debt tranches. Overall, macro sentiment was supportive through July with US and European central banks providing more dovish outlook as headline inflations tempered at the same time as GDP proved more resilient than expected. This supported risk assets including leveraged loans as well as CLO”.

• Strong current position: In July, Volta’s six-month cash receipts were a record €25.3m, 21.4% of NAV, reflecting low defaults (strong corporate cashflows and profitability), low locked-in CLO borrowing costs, CLOs being floating-rate investments, and Volta’s portfolio positioning over recent years into CLO equity.
• Resilience going forward: In our note, R&A shining light on 20%+ IRR base-case scenarios, we reviewed how Volta generated cashflows, and why defaults would rise – but not to the level built into loan prices. We highlighted Volta’s diversification and geographical exposure. We also noted that the R&A disclosure could help to understand these issues.
• Valuation: Volta trades at a double discount, with its share price at a 21% discount to NAV, and we believe its mark-to-market (MTM) NAV still includes a further sentiment-driven discount to the present value of expected cashflows. Volta targets an 8% of NAV dividend (11.5% 2023E 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 robust: 7.7% p.a. (dividend reinvested basis) since inception. Volta’s performance relative to that of its peers has been strong, and returns for investments made after the financial crisis were double those in prior years.