Structured products fund, Volta Finance solid performance January 2023 (LON:VTA)

AXA IM has published the Volta Finance Ltd (LON:VTA) monthly report for January 2023. The full report is attached to this release and will be available on Volta’s website shortly (www.voltafinance.com).

PERFORMANCE and PORTFOLIO ACTIVITY

Volta Finance has reported a strong performance of +5.5%, for the first month of 2023.

Although the CLO market is accustomed to a “January rally” the moves recorded in January 2023 were well above what might have been expected. Indeed, many investors were hesitant to invest in either CLO Debt or Equity tranches towards the end of 2022 but with the start of a new calendar year, the risk/reward perception shifted and translated into significant buying interest across the board. The demand for assets that were considered as cheap at the start of 2023 (CLO spread compression was lagging the spread compression observed on most of the broader credit markets in Q4 2022) was strong and led the way to a solid January performance, after a disappointing December.

At the end of January, the situation with regards to Loans fundamentals and CLOs is unchanged and still relatively supportive: default rates are low (0.4% for European loans and 0.8% for US loans on a last-12-month basis) and earnings are coming in slightly better than expected.

Q4 2022 earning season is again illustrating our view that inflation can provide some benefits: it erodes the value of debt (hence facilitating refinancings and reducing the occurrence of defaults) and helps passing higher costs through to clients (it is easier to adjust selling prices to maintain some profitability when overall prices move versus when they are flat).

Regarding 2023 expected default rates, the consensus amongst rating agencies and bank research publications appears to be that default rates may reach somewhere between 2.5 to 5% for both US and European loans. Our house view remains at the bottom of this range. We believe that these expectations are predominantly model based and that those models incorporate the shape of the yield curve (which is highly inverted in the US) as an indicator of the extent of the potential recession. Models also incorporate the pace in interest rates hikes through 2022 (we fully agree that this parameter makes sense) but totally ignore the benefit of inflation.

Most of our CLO positions paid cashflows in January; it was again a good month payments-wise: Volta received the equivalent of €9.8m of interests and coupons. Over the usual 6-month-basis time frame Volta received €24.3m of interest and coupons, ie. a 21.6% annualized cash flow to NAV.

Given that defaults are still materializing at a low pace (remember that rating agencies were expecting default rates to be in the 2 to 2.5% range for 2022) – even if we are wrong and if default rates reach the higher end of the above-mentioned range – we consider CLO Equity quarterly payments being negatively impacted in 2023 as a very remote risk. On this front, we see an increased number of loan refinancings (amend-and-extend) enabling CLOs that are still reinvesting to increase the WAS (Weighted Average Spread) of their underlying loan books. All other things being equal, the higher the WAS the higher the cashflow distributed to the Equity.

Volta’s underlying sub asset classes monthly performances** were as follow: +2.4% for Bank Balance Sheet transactions, +5.9% for CLO Equity tranches, +5.1% for CLO Debt tranches; and +6.3% for Cash Corporate Credit and ABS (which represent circa 2.2% of the fund’s NAV).

No significant purchases were made in January although Volta was drawn by €1.75m from the European warehouse we opened in October (this drawn amount corresponds to settlement of loans purchased in October/November).

As at the end of January 2023, Volta’s NAV was €225.2m or €6.16 per share.

*It should be noted that approximately 1.81% 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 1.23% as at 30 November 2022, 0.58% was at 30 September 2022.

** “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.

Click to view all articles for the EPIC:
Or click to view the full company profile:
Facebook
Twitter
LinkedIn
Volta Finance

More articles like this

Volta Finance

Diversified investment opportunities

For the intrepid investor, there is no shortage of diversified investment opportunities. Interest in cryptocurrencies, structured products, direct indexing, and other “trendy” assets has grown in recent years, but a new report by Morningstar suggests that advisors may need

Volta Finance

The potential of CLO equity

Collateralized loan obligation (CLO) equity has emerged as a source of potentially robust, and front-loaded, returns for sophisticated investors. Over the past 30 years, collateralized loan obligations (CLOs) have grown from a niche asset class into a

Volta Finance

CLO: Best debt investment opportunities for this year

Collateralized loan obligations are among the best debt investment opportunities for this year, according to John Wright, global head of credit at Bain Capital. Spreads on the structured investment vehicles, which repackage leveraged loans into bonds

Volta Finance

US banks reentering $1.3 trillion CLO market

The biggest US banks are stepping back into the $1.3 trillion market for collateralized loan obligations after nearly two years of shying away from investing in the securities. Citigroup Inc. has resumed buying CLOs, according to

Volta Finance

Intricacies of collateralised loan obligations

In 2021, specialist asset managers created over $500 billion in CLOs, benefiting from substantial post-pandemic monetary support. However, momentum has slowed in the first half of this year, with only about $69 billion launched or refinanced,

Volta Finance

Understanding Collateralized Loan Obligations

Definition and Purpose A Collateralized Loan Obligation (CLO) is a type of financial security that is backed by a pool of loans, typically corporate loans or commercial real estate loans. The purpose of a CLO is to

Volta Finance

CLO market set for $20 billion reset spree

A type of refinancing transaction is becoming more popular in the $1.3 trillion market for collateralized loan obligations, a sign the industry is healing as concerns over surging inflation and a potential recession abate. Known as

Volta Finance

Volta Finance Limited Declare Quarterly Interim Dividend

Volta Finance Limited (LON:VTA) has announced that it has declared a quarterly interim dividend of €0.135 per share payable on 25 January 2024 amounting to approximately €4.94 million, approximately equating to an annualised 8.25% of net asset

Volta Finance

How CLOs can enhance returns for retail clients

Collateralized loan obligations, or CLOs, may be a way for advisors to enhance retail clients’ portfolios. They provide investors with access to a diverse pool of senior secured loans. While they have been primarily used by