High dividend stock Volta Finance 9.9% annual yield shines amidst H2 macro challenges (LON:VTA)

Structured products income fund, Volta Finance Limited (LON:VTA) has published its Annual Report and Audited Financial Statements 2022 for the period ended 31 July 2022, attached to this article. Dagmar Kershaw Chairman of Volta Finance Ltd commentary is below:


Dear Shareholders, in my first Chairman’s Statement to you, 

I would have liked to convey a more positive message but unfortunately the world – and particularly Europe – finds itself in a challenging situation once again and Volta is not immune from those forces. 

For the year ended 31 July 2022, Volta’s NAV has fallen to €6.22, a 15.8% reduction of the half year number (€7.39) and a reduction of 14.6% compared to a year ago (€7.28). The share price has fared somewhat better, with a reduction of 13.0% from €6.02 a year ago to €5.24 at the end of July 2022. Whilst a fall in value is never welcome, Volta’s performance is consistent with moves seen in broader financial markets. Over the same period, the FTSE 250 fell 12.1%, the DAX fell by 13.3% and high yield bond spreads widened out by 45% from 332bp to 485bp. 

Looking back at financial markets over the last 12 months, it can be characterised as a year of two halves: the excess liquidity and buoyant markets of H1 receded rapidly to war in Ukraine, volatility, inflation and energy instability in H2. The term ‘unprecedented’ is in danger of becoming over-used, and it has certainly been an apt description of the COVID-19 pandemic and measures taken to tackle it. Markets were braced for a certain range of outcomes in the post- COVID-19 era, but they did not anticipate the invasion of Ukraine and the subsequent impact of Europe’s reliance on Russian energy. Most finance professionals today are fortunate to have never witnessed (at least not in their adult lives) double-digit inflation, recession and rapidly rising interest rates, however that lack of perhaps experience, certainly unfamiliarity with dealing with a recession adds another dimension of uncertainty to the heady mix. 

Against this challenging backdrop, there are some rays of sunlight and I believe Volta is one of them. The performance of Volta’s underlying portfolio is strong and cashflows are at all-time highs with a portfolio total cash return of 18.0% in the past year. You might wonder how that can be, but Volta’s fundamentals are sound: 

• The credit quality of corporate borrowers has been and – at least for the time being – continues to be stable with defaults at low levels. Europe leveraged loan defaults have been just 0.7% in the past year, with the US even lower at 0.3%; 

• CLOs hold floating rate assets which means that rate rises are passed through to the CLO investors as higher returns; • The portfolios are highly diversified by geography and industry, which helps maintain portfolio quality when industries suffer downturns (e.g. travel, as we saw in the COVID pandemic); 

• CLOs are structured to withstand a certain number of defaults, typically 2% p.a. but actual default rates have been significantly lower in recent years, meaning that the funds have been able to generate better than anticipated returns whilst building their reserves (“par value”) to create cushion for future downturns; and 

• CLO cashflows are generated from contractual debt interest, not dividends meaning that those payments are significantly more stable than equity dividends which can be reduced or not paid by companies in more challenging times. 

CLOs are a sophisticated asset class with a number of moving parts, but history of over 20 years of CLO investing shows that in challenging markets, the structures function in the manner that they are planned to do. Sentiment may affect market pricing of the underlying assets and Volta’s share price but the payment priorities and structural protections embedded in these funds hold firm and good fundamental credit investments will continue to perform.

All of this depends on the investment skills of the manager, and the ability to identify and actively manage CLO investments and opportunities. In the team at AXA IM, Volta has one of the longest-established, most experienced and high quality teams in the CLO market globally. Their first class track record of managing CLOs through bull and bear markets means that they will not only manage Volta’s portfolio actively, but also be able to identify some of the best opportunities to create value in the more volatile markets ahead. 

Volta has a stated dividend policy of 8% of NAV, paid quarterly, and your Board has continued to implement this policy through the past year. Given the ongoing discount of the share price to NAV, the dividend yield for the year ended 31 July 2022 equates to an attractive 9.9% based on the share price of €5.24 at 31 July 2022. Your Board recognises that high cash dividends are a valuable commodity in times of uncertainty. 

Paul Meader has stepped down as Chairman and from the Board on 31 July 2022 following a tenure of almost 9 years and I would like to thank him for his service, his excellent stewardship and leadership of the Board. I would like to welcome Yedau Odoungele, who joined the Board in June 2022. Yedau has over 25 years’ experience in fixed income and structured credit, including as a CLO structurer and she will bring a very valuable contribution and complementary skill set to the Board. Alongside the Board changes, the Risk Committee has been formally dissolved at the 31 July 2022 year end and the responsibilities of this Committee have been subsumed into the Board. In closing, I am aware that we are in uncertain times and the road ahead is expected to be rockier than the one behind us. I am comforted that we have a first class investment manager in AXA IM, who will help us to not only navigate the bumps in the road, but actively seek out opportunities and smooth the path for future growth. Please do not hesitate to contact me through the Company Secretary, and I thank you for your continued support. 

Dagmar Kershaw Chairman, 28 October 2022

Click to view all articles for the EPIC:
Or click to view the full company profile:
Share on facebook
Share on twitter
Share on linkedin
Volta Finance

More articles like this

Volta Finance

Mortgage-Backed Securities and Collateralized Mortgage Obligations

Mortgage-backed securities (MBS) are debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into

Volta Finance

CLO prices edge higher

Prices for the highest-rated bonds backed by leveraged loans are creeping higher in trading markets, signaling that at least some investors are snatching up securities they see as cheap, and the debt may rally further.   Collateralized loan

Volta Finance

How do collateralized loan obligations work?

Understanding CLO Collateral: Leveraged Loans A portfolio of loans act as the collateral supporting a CLO. The proceeds of these loans are typically used by non-investment grade borrowers to support a range of activities, including mergers and acquisitions,

Volta Finance

Demystifying collateralized loan obligations

What Is a Collateralized Loan Obligation? A collateralized loan obligation (CLO) is a portfolio of predominantly senior secured loans that is securitized and actively managed. Each CLO issues a series of floating rate bonds, along with a first-loss equity tranche.

Volta Finance

Collateralised loan obligations explained

Against a backdrop of geopolitical and economic volatility, collateralised loan obligations (CLOs) continue to navigate uncertainty and hold net asset values. Collateralised loan obligations (CLOs) sit at the pinnacle of various financial processes, in terms of both their

Volta Finance

What is the difference between a CDO and a CLO?

Many who followed the 2008 financial crisis closely would know about CDO (collateralized debt obligations). They were a major reason triggering the financial crises. There is another similar term, CLO (collateralized loan obligations), and many people do get confused

Volta Finance

CLOs: Uncover opportunity beyond AAAs

Collateralized loan obligations (CLOs), which are securitized pools of leveraged loans, may provide several attractive benefits within an income-oriented portfolio, including enhanced yields, structural risk protections and diversification. We believe CLOs are particularly attractive in today’s rising rate environment. They

Volta Finance

Mortgage Investment

Mortgage Investment means a direct or indirect interest in a tax-exempt mortgage revenue Bond secured by a Property, including residual interests in one or more trusts which hold tax-exempt mortgage revenue Bonds, and any other loan (whether or not

Volta Finance

Collateralized Loan Obligations (CLO)

Collateralized loan obligations (CLOs) are loans that are repackaged and bought by investors. These securities are backed by a pool of loans comparable to collateralized mortgage obligations (CMOs). With CLOs, the underlying debt is loans, as opposed to

Volta Finance

The U.S. leveraged loan market

Broadly syndicated loans to non-investment grade U.S. Corporations (“leveraged loans”) are widely misunderstood. A number of commentators imply that leveraged loans are shadowy corporate equivalents to pre-crisis sub-prime mortgages. We do not believe this to be true and

Volta Finance

CLOs: Lower duration risk and pick up yield

With higher relative yields, a history of strong risk-adjusted returns, and protection against rising rates, there is a strong case for a strategic allocation to collateralized loan obligations (CLOs) within an income portfolio. In the upcoming webcast, CLOs: Lower

Volta Finance

A look at leveraged loans and CLOs

Chris Galipeau, Senior Market Strategist of Putnam’s Capital Market Strategies group, recently spoke with Scott M. D’Orsi, CFA, a Portfolio Manager in Putnam’s Fixed Income group on the Active Insights podcast. Scott has been in the investment industry

Volta Finance

Why invest in CLOs?

CLOs have historically offered a compelling combination of above-average yield, strong risk profiles, and the potential for strong upside appreciation. Over the long term, collateralized loan obligation (CLO) tranches have historically performed well relative to other corporate debt categories, including

No more posts to show