AXA IM has published the Volta Finance Ltd (LON:VTA) monthly report for May 2024.
PERFORMANCE and PORTFOLIO ACTIVITY
Dear investors,
May was a strong month for Volta Finance, with a net performance of 1.7% and year-to-date return close to +9.5%. In comparison, US High Yield returned +1.63% year-to-date while European High Yield returned +2.57%.
Despite volatile markets, credit markets performed well in May. The momentum was fueled – in Europe – by anticipation of imminent rate cuts from the European Central Bank, which were eventually implemented early June. Both High Yield Credit indices CDX (for the US) and Xover (for Europe) tightened by 20bps+ on the month while US 10-year treasuries decreased from 4.68% to 4.50%. Leveraged Loan markets also showed strength as Euro Loans gained one point to 98.15px while the US index closed 30 cents up at 96.94px.
Primary CLO markets remained extremely active, with significant issuance in both markets: there was circa USD 47bn of supply in the US (BSL + MML) and EUR 8.5bn in Europe. Spreads tightened across the capital structure with AAAs moving 5bps tighter to +140bps ; Non-Investment Grade assets also gained momentum as Tier One CLO managers managed to place their BB-rated tranches well inside +600bps in the US.
Fundamentals in both underlying loan markets continued to display no sign of weakness, notably with default rates down to 1.08% in the US and 1.48% in Europe. At the same time, the pick-up in loan refinancings has been increasing the speed of prepayments in amortizing CLOs and fueling CLO refinancing and reset activity.
Volta Finance’s investment portfolio benefited from this search for yield, with mark-to-market valuations for CLO debt tranches increasing and CLO Equity investments returning over 3% on the month due to a combination of both higher valuation and strong payments. Through the month, Volta engaged in various transactions, including swapping from an amortizing US CLO debt tranche into a longer profile one, adding to an existing CLO Equity (€0.1m) and funding €1.6m of a European CLO warehouse. The cashflow generation over the last 6 months remained strong at c. €28.4mm equivalent of interests and coupons on an annualized basis, representing 22% of this month’s NAV.
Volta’s underlying sub asset classes monthly performances** were as follow: +1.4% for Bank Balance Sheet transactions, +3.2% for CLO Equity tranches, +2.4% for CLO Debt tranches and -1.3% for Cash Corporate Credit & ABS***, cash representing c.8% of NAV.
As of end of May 2024, Volta’s NAV was €262.9m, i.e. €7.19 per share.
*It should be noted that approximately 0.49% of Volta’s GAV comprises investments for which the relevant NAVs as at the month-end date are normally available only after Volta’s NAV has already been published. Volta’s policy is to publish its NAV on as timely a basis as possible to provide shareholders with Volta’s appropriately up-to-date NAV information. Consequently, such investments are valued using the most recently available NAV for each fund or quoted price for such subordinated notes. The most recently available fund NAV or quoted price was 0.26% as at 30 April 2024, 0.23% as at 31 March 2024.
** “performances” of asset classes are calculated as the Dietz-performance of the assets in each bucket, taking into account the Mark-to-Market of the assets at period ends, payments received from the assets over the period, and ignoring changes in cross-currency rates. Nevertheless, some residual currency effects could impact the aggregate value of the portfolio when aggregating each bucket.
*** The cash Corporate Credit and ABS bucket is currently made of 3 legacy assets representing 0.8% of GAV.
Volta Finance Ltd (LON:VTA) is a closed-ended limited liability company registered in Guernsey. Volta’s investment objectives are to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.
