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In 2019, Volta continued to outperform like-for-like CLO peers, although its ca.7% absolute performance is a little below historical averages (10.5% p.a. over five years and 9.2% p.a. since inception). Looking forward, we note that the six-month annualised income yield is running at a near-record 15.7% and, over time, it is this income yield, not capital volatility, that will pay the dividend (current shareholder dividend yield 9.4%). We believe the capital movements reflect volatile market price movements and that the dividend is not being paid out of ongoing reduction in capital. Over time, recognition of this may make Volta more attractive to income funds.

  • Volta monthly report: December NAV rose 3.3% (YTD 6.7%) to €7.61 per share. In 2019, Volta’s portfolio was significantly rotated, increasing the CLO Equity bucket substantially (from 36.4% to 52.6%, including CMV and warehouses), at the expense of CLO debt. The Repo funding fell from $50m to $35m.
  • Peer December reports: Blackstone GSO Loan Financing’s € NAV rose 1.83% (YTD +14.4%, different accounting basis), Fair Oaks Income’s $ NAV rose 3.05% (one year -0.7%), Marble Point’s $ NAV rose 5.0% (YTD +5.7%), TwentyFour Income Fund’s £ NAV rose 1.3% (one year +5.0%). We reviewed Volta’s peers in Diving deep finds you the treasure.
  • Valuation: Volta trades at a 14% discount to NAV. Peer-CLO finance funds trade at a ca.5% 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 relative discount anomalous, in our view.
  • 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: nearly 10% p.a. (dividend re-invested basis) over five years. The current portfolio-expected NAV return is more than 10%. The prospective yield is 9.4%, and we believe is generated by predictable income streams.
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