Volta Finance Ltd (LON:VTA) monthly report for February 2024, published by AXA IM.
PERFORMANCE and PORTFOLIO ACTIVITY
Volta Finance is pleased to report another positive performance in February at +1.0%, reflecting the price appreciation of the fund’s underlying portfolios through the month. For comparison, US High Yield returned +0.31% and European High Yield returned +0.35% over the same period.
The strong sentiment from January fed through February as major Credit indices like iTrax Xover hit 2yrs tights at +300bps. European loans were slightly down from 97.00px to 96.80px, although still significantly up year-to-date (96.00px as of Dec 2023). On the US side, loans recorded a 20 cents gain and reached 96.45px, their highest level since mid-2022. The momentum was evidently supported by a strong Q4 2023 US earnings season – proving once more the resilience of the US economic activity. Bonds yields continued to trend higher amid ongoing evidence of sticky core inflation and central banks’ hinting at potentially delaying rate cuts.
In terms of CLO issuance, the US and European primary markets have fully reopened. Issuance volumes have surged by +48% in the U.S., reaching $33.66 billion, and by +12% in Europe, totalling €5.84 billion compared to year-to-date figures for 2023. This impacted secondary as volumes of activity reduced in favor of the primary market and as spreads moved inside of primary (50bps for instance on CLO BB tranches).
Strategy in February was to take advantage of the strong momentum in both the Primary CLO market and Loans. We converted one of our US CLO warehouse investment into a New Issue US CLO transaction, from which we purchased an CLO Equity position ($7.93m invested) in the early days of February. Also, we continued to rotate from vintaged CLO debt tranches that had passed their reinvestment period into New Issue transactions as we purchased $6m of fresh US BBs and sold c.$5m of US CLO BB. Last but not least, we were able to participate in another US CLO Equity (c. $4.3m consideration) with upside scenarios in the 16-18% IRR range.
From the perspective of cashflow generation, over the last 6-month period Volta received 21.6% annualized cash flow compared to NAV (€27.5m of interests and coupons), a level that is largely stable since early 2023. We expect distributions to be broadly stable at the April distribution date.
In terms of relative value, we currently see more value in equity over BB/B. We appreciate the high cash-on-cash nature of CLO equity and its shorter duration profile. Our preferred route for CLO equity is in the primary market, where we can select the right manager and source sizes to target mid-teens returns. We also opportunistically explore the secondary market to optimize our fund.
Volta’s underlying sub asset classes monthly performances** were as follow: +1.2% for Bank Balance Sheet transactions, +1.7% for CLO Equity tranches, +1.6% for CLO Debt tranches and -14.3% for Cash Corporate Credit and ABS.
As of end of February 2024, Volta’s NAV was €254.7m, i.e. €6.96 per share.
*It should be noted that approximately 5.47% 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 5.22% as at 31 January 2024 and 0.25% as at 30 September 2023.
** “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.
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.
