FY’24: another year of outperformance

Volta’s monthly to its FY-end of July reported an NAV total return of 19.7% while annualised cash receipts are 22% of the July NAV, consistent with levels seen since mid’22. For 16 consecutive months, it has generated positive NAV returns. In this note, we detail the different elements that have driven this performance. We note both positive markets and incremental value added by the manager. To put Volta’s returns into perspective, YTD to end-July, there has been a +10.8% total NAV return, more than twice the level of high-yield debt markets (US and Europe), which returned ca.4.5%. The discount appears anomalous with such a performance.

• Positive CLO markets: We believe investors should “follow the cash”. Receipts into CLO structures have been strong, with low default rates from good corporate profitability and cashflow, and many borrowers passing on inflation to customers. Cash leaving CLO structures reflects refinancing and resetting opportunities.
• Value added by AXA IM: AXA IM adds value with its scale, bringing i) specialist expertise to identify mis-priced opportunities and manage risk, ii) a broad network with informational advantages, and iii) business introduction and pricing opportunities. We also highlight its portfolio construction/asset selection.
• Valuation: Volta trades at a double discount: its share price is at a 26% discount to NAV, and we believe its MTM NAV still includes a further sentiment-driven discount to the present value of expected cashflows. Volta targets an 8% of NAV dividend (10.1% 2024E yield, on current share price).
• Risks: Credit risk is a key sensitivity. In this note, we examine the valuation of assets, highlighting the multiple controls to ensure its validity. The NAV is exposed to sentiment towards its own and underlying markets. Volta’s long $ position is only partially hedged.
• Investment summary: Volta’s NAV and the discount to NAV may be volatile over time. Fundamental long-term returns have been robust: 8.0% p.a. (dividend reinvested basis) since inception. Volta’s performance relative to that of its peers, and the market it operates in, have been strong. Returns for investments made after the financial crisis were double those in prior years.