May 2024 Monthly

In our note, Insights from the Report and Accounts, we reviewed the key information and messages investors should take from the Report and Accounts. We noted the detailed explanations as to how Volta is delivering strong returns. The value specifically added by the manager (see The benefits of having AXA IM as the manager) was reaffirmed by its comments in the Mar’24 factsheet with regards Altice France, a high-profile situation where lenders may have to take a haircut. Volta noted that, in its portfolio, the average underlying exposure was ca.0.8% of the portfolio (half the European CLO average) and that no cashflow diversion is expected. This much better-than-peer risk exposure gives confidence in the expected portfolio resilience.

• Strong current position: Volta’s annualised cash receipts of 21% of NAV reflect low defaults (strong corporate cashflows and profitability, ability to pass on inflation to date), low locked-in CLO borrowing costs, CLOs being floating-rate investments and Volta’s portfolio positioning in recent years into CLO equity.
• Mar’24 factsheet: The March return was 2.3% (YTD: 6.3%). Annualised cash receipts over the past six months were 21% of NAV (broadly stable since early 2023). Key highlights in the month were +2.4% for CLO equity and +2.3% for CLO debt tranches. Cash was 5.2% of gross asset value. Mgt. noted the strong CLO primary issuance market.
• Valuation: Volta trades at a double discount: its share price is at a 27% discount to NAV, and we believe its mark-to-market approach includes a sentiment-driven discount to the expected cashflows. Volta targets an 8% of NAV annual dividend with €0.14 announced for the most recent quarter (10.3% 2024E investor yield).
• Risks: Credit risk is a key sensitivity. We examined the valuation of assets, highlighting the multiple controls to ensure its validity, in our initiation note, in September 2018. The NAV is exposed to 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 may be volatile over time. We note the closest competitor to Volta has had a more stable NAV valuation due to a different asset valuation approach. 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 has been strong, and returns for investments made after the financial crisis were double those in prior years.