Multi asset income fund delivers over 11% performance since July 2023 (LON:VTA)

Volta Finance Ltd (LON:VTA) monthly report for January 2024, published by AXA IM.

PERFORMANCE and PORTFOLIO ACTIVITY

Volta Finance started the year on a positive note as the fund achieved a performance of +2.8% in January 2024. This was the extension of Volta’s strong momentum as the fund recorded its seventh positive month in a row. The performance since July-end 2023 consequently reached double digits, at +11.1%.

CLOs delivered solid returns in January and outperformed traditional credit markets, especially US Corporates (+0.16%, ICE BofA Corp Index) and US High Yield (+0.04%, ICE BofA HY Index). While imminent rate cuts were priced-in, markets were caught off-guard by strong data releases and the subsequent uncertainty regarding central banks’ next move. Floaters such as CLOs fully benefited from the repricing of the rates curve, capturing more income on their floating leg while credit margins tightened due to the increased demand for the asset class given the superior risk/reward profile of CLOs compared to traditional credits.

Looking at CLO Equity, we closely monitor loan dynamics and particularly the current repricing action taking place both in the US and Europe. In fact, the proportion of loans trading above par topped at 40% in early January before tipping down to 13% at month-end in the US market / 17% in the European market. This should lead to more loan repricing activity for the months to come and thus we are now seeing the loans’ weighted average spread within CLO underlying portfolios being at their top.

Still, in terms of cashflows, January 2024 was a good month for Volta: it received the equivalent of €11.5m of interests and coupons (in line with the previous quarter). Over the last 6-month period, Volta received €27.2m of interests and coupons, ie a 21.6% annualized cash flow to NAV. This compares well with the 21.6% annualized cash flow to NAV measured as of January 2023 where the NAV per share was standing at 6.16.

In terms of management, we used the January’s strength to keep on rotating from a post-reinvestment period CLO debt tranche into a new-issue transaction: as expressed in earlier communications, we favor clean collateral pool of assets as the full impact of the aggressive rate hikes over the past two years sinks in. Also, we kept on investing in our 2 US CLO warehouses recognizing that CLO debt tranches tightening is improving CLO Equity arbitrage and that one of our CLO managers is scrutinizing to make the CLO take-out.

Volta’s underlying sub asset classes monthly performances** were as follow: +0.9% for Bank Balance Sheet transactions, +2.2% for CLO Equity tranches, +4.8% for CLO Debt tranches and -1.2% for Cash Corporate Credit and ABS.

As of end of January 2024, Volta’s NAV was €251.9m, i.e. €6.89 per share.

*It should be noted that approximately 0.68% 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 0.42% as at 29 December 2023 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.

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