Volta Finance

Delivering the structured finance opportunity

05 Sep 2018 / Corporate research

Volta invests in a broad portfolio of structured finance assets, maintaining flexibility to optimise long-term returns in highly dynamic markets. Its five-year 12.9% p.a. shareholder return has been generated by predictable coupons and dividends and not from capital gains. Volta’s long-term NAV returns have beaten peers for an in-line volatility. Its deep market understanding has identified assets mis-priced for risk. Economic downturns create opportunities as well as threats.

  • Strategy: Volta aims to preserve its capital across the credit cycle and to provide a stable stream of income (via quarterly dividends) by investing in a diversified portfolio of structured finance assets. It has a flexible mandate, meaning that Volta can respond rapidly to market opportunities.
  • Follow the cash: While structured finance markets have their complexities, if investors “follow the cash”, most of these become much clearer. Looking through the terminology, at its heart, Volta earns returns by collecting payments from hundreds of end-borrowers and by picking the right assets.
  • Valuation: Volta trades at a 14% discount to NAV. Peer structured finance funds, and a range of other debt funds, on average, trade at small premiums. In the medium term, Volta has delivered faster NAV growth than its immediate peers and an in-line volatility, making this discount an anomaly.
  • Risks: Credit risk is a key sensitivity (Volta has a widely diversified portfolio). We examine the valuation of assets, highlighting the multiple controls to ensure its validity. 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 may be sentiment-driven, share-price volatility. However, long-term returns have been good: 12.9% p.a. returns (dividend re-invested basis) over five years. The current portfolio expected NAV return is similar. The yield is 8.6% and we believe will be covered by predictable income streams.