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COVID-19: -

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In our 15 September note, Value added by active portfolio management, we explored how Volta’s portfolio positioning had delivered relative resilience amid the COVID-19 crisis. AXA IM selected investments i) whose price reflected a downturn, ii) of recent vintage, and iii) in defensive sectors. Volta marks to market its investments and has suffered from sentiment-driven effects. Annualised received cashflows, now, represent 15% of September NAV, and market conditions have been improving. Volta’s recent discount to NAV is anomalous with trends in comparable corporate debt markets despite having the same fundamental exposures.

  • Volta monthly report: In September, Volta’s NAV rose by 4.8% (YTD -17.3%). CLO debt was up 5.9% and equity tranches up 4.9% (71% of portfolio), bank balance sheet transactions rose 1.4% (12%) and ABS positions fell 9% (technical arrears re French credit moratoria, which should “smooth out” over time).
  • Peers monthly updates: Blackstone GSO Loan Financing’s € NAV fell 1.63% (mark-to-model, YTD -6%), Fair Oaks Income’s $ NAV rose 7% (one year down 26%), TwentyFour Income Fund’s £ NAV rose 2.7% (one year up 2%, significant residential mortgages), and Marblepoint’s £ NAV increased 2% (YTD -21%).
  • Valuation: Volta trades at a 37% discount to NAV (which is subject to significant external input and oversight). The relative discounts to Fair Oaks and Marblepoint seem anomalous, as, over the long term, Volta has delivered a better NAV performance. Volta aims for 8% NAV distribution (on current discount 10.7% yield).
  • 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 both the NAV and the discount to NAV reflect sentiment. This may be expected to normalise over time, and we note that BGLF’s model-based approach saw its NAV drop by only a third that of Volta in March 2020. Fundamental long-term returns have been good: pre-COVID-19, ca.11% p.a. (dividend re-invested basis) over five years. Volta’s performance relative to its peers has been strong and returns for investments made after the financial crisis were double those in prior years.
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