On 21 March 2019, we published a review entitled Manager’s March 2019 presentation. The key takeaways were: (i) Flexible mandate means it can exploit whichever element of the CLO market offers the best opportunity. This is likely to see further allocations to CLO equity tranches in the near term. (ii) The credit cycle is likely to turn but this should be gentle and creates re-investment opportunities. (iii) The flexible mandate and significant cash generation from coupons, dividends and maturities means the portfolio can be quickly re-positioned if market conditions change. This note follows our 14 January review Investment Opportunities at this point of the cycle.

  • Volta monthly report: In February, Volta’s NAV rose 0.4% (after the 3.1% rise in January) taking it to €7.98 per share. The Bank Balance Sheet Transactions (13% of portfolio) are less volatile and rose by 1.2% CLO debt tranches were up 3.6% (38% of portfolio). In local currency terms, CLO equity tranches fell 0.4% (32% of portfolio). Volta is effectively fully invested and leverage is being reduced.
  • Peers’ January reports: Blackstone GSO Loan Financing said that its more marked to model € NAV was up 1.9%. Fair Oaks Income’s $ NAV was up 0.2%. Marble Point saw a 0.88% $ NAV monthly rise. TwentyFour Income Fund’s £ NAV rose 0.74%. Carador is now in wind-up mode. We reviewed Volta and its peers in our 25 February 2019 report “Diving deep finds you the treasure”.
  • Valuation: Volta trades at a 12% discount to NAV. Peer-structured finance funds trade at a ca.4% discount. In recent months and over the medium term, Volta has delivered a better NAV performance than its immediate peers and in-line volatility, making this discount anomalous.
  • 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 there could be sentiment-driven, share price volatility. However, long-term returns have been good: ca.11% p.a. (dividend re-invested basis) over five years. The current portfolio expected NAV return is over 10%. The historical yield is 8.9% and we believe is covered by predictable income streams in 2019E.