Structured products fund Volta Finance April growth – NAV €264.1m

AXA IM has published structured products income fund Volta Finance Ltd (LON:VTA) monthly report for April. The full report is attached to this release and will be available on Volta’s website shortly (www.voltafinance.com).

PERFORMANCE and PORTFOLIO ACTIVITY

April saw a continuation of the recovery from the losses experienced in February following the Russian invasion of Ukraine. During April, the fund gained 2.3% which leaves the year-to-date performance at +1.4%. Part of this good performance is due to the USD exposure in Volta (+1.6% contribution in April).

Turning to the broad asset classes, the monthly performances** were: +0.8% for Bank Balance Sheet transactions, +0.9% for CLO equity tranches; +0.5% for CLO debt; +0.7% for Cash Corporate Credit and ABS (together representing 2.8% of NAV).

Most markets were relatively flat in April including the US and the European loan markets. Relative to end-of-year levels, loan prices were down by roughly 1% in the US and 1.5% in Europe on average. Both markets are now 1% lower in terms of average prices.

Our view is unchanged: we still think that we may see an increase in default rates: 1 to 2% for 2022 and 2 to 3% for 2023 seem reasonable expectations for both loan markets.

With central banks fighting against inflation, we may see volatility continuing during the rest of the year. Given the significant weight of CLO Equities, the outlook for Volta mainly depends on the magnitude of positive impacts (purchasing loans at a discount and new loans at higher spreads) to compensate for the negative outcome coming from higher default rates.

One clear and positive thing is the fact that most of Volta Finance’s CLO Equity positions have been sourced, refinanced or reset in 2021 with a relatively low cost of debt and relatively long reinvestment periods. If loan spreads are to be higher for some time, we will benefit from the increase in the weighted average spread of the underlying loan pools while the cost of leverage has been fixed at a relatively low level.

For the coming quarters, there are no signs that Volta may suffer from any diversion of cashflows from its CLO Equity positions. Receiving a continuing high level will allow us to take advantage of opportunities arising from the current market environment while paying a solid quarterly dividend.

In April, Volta received the equivalent of €9.7m in terms of interest and coupons. For the 6 months ended April 2022, Volta Finance received €22.5m interest and coupons representing a 17.0% annualized return on NAV.

As at the end of April 2022, Volta’s NAV was €264.1m or €7.22 per share.

*It should be noted that approximately 9.4% 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 3.0% as at 31 March 2022, 5.9% as at 31 January 2022, and 0.5% as at 31 December 2021.

** “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 crosscurrency rates. Nevertheless, some residual currency effects could impact the aggregate value of the portfolio when aggregating each bucket.

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