October 2024 Monthly

In our note, FY’24: another year of outperformance, we highlighted that 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. Our note details 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 to be anomalous with such a performance.

• August factsheet: The strong FY performance has continued with a 17th consecutive month of positive NAV return. The YTD return, at +10.9%, compares with US and Euro High Yield indices, which returned +6.3% and 5.6%, respectively. Annualised cash generation has risen to 23% of NAV. August saw returns of 1.8% and 0.5% for CLO equity and debt tranches, respectively.
• Value added by AXA IM: AXA IM scale brings 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 24% 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 €0.145 announced for the most recent quarter (9.8% 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.