BlackRock North American Income

BRNA offers a disciplined US value opportunity with superior income attributes…

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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by BlackRock Sustainable American Income. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

BlackRock North American Income

BlackRock North American Income Trust (BRNA) is a value-orientated income strategy, seeking to achieve a balance between capital growth and income yield. The trust offers investors strong income potential, not just through the revenues of its underlying holdings but also through the trust’s ability to pay income out of its capital and its use of option writing (outlined further in the Dividend section).

BRNA is run by a highly skilled team of senior portfolio managers – Tony DeSpirito, Franco Tapia and David Zhao – who have been managing the portfolio as a team since September 2017. They leverage BlackRock’s well-resourced US income & value team, with Franco and David leading the broader US analyst teams and Tony acting as CIO of US fundamental active equities. As we discuss in the Portfolio section, their process is one which focusses on value, income and income growth. BRNA’s portfolio is constructed in a barbell manner, allocating stocks to either stability or cyclical value buckets.

Since Tony DeSpirito assumed management responsibilities in August 2014, BRNA has returned an NAV performance of 104.1%, compared to the 98.8% of its benchmark and the 96.6% of its peers. However, the performance of BRNA has lagged that of its peers over the last year, with the market being increasingly driven by the growth sector, which BRNA actively avoids.

Despite its underperformance BRNA trades at a narrower discount than its income focused peers, a result of its superior income potential. While the managers feel the discount is a result of investors’ lack of appetite for US value stocks, they believe there are major tailwinds on the horizon which could support a value rally.

Kepler View

We believe BRNA offers investors something increasingly scarce: a disciplined, dedicated and consistent approach to US value investing. It is our view that the team are unwavering in their allocation to what they believe are the best value and income names in the US, something sorely needed in a market increasingly dominated by US growth strategies.

While BRNA’s performance has lagged over the last year, we believe it has delivered on its promises over the long run, being able to protect capital during periods of volatility or downturns while providing a superior dividend to its investors. This dividend is enhanced by the trust’s creative approach to income payouts, and its ability to both pay out of capital and write options gives it an edge over many other income-focussed trusts.

However, perhaps more attractive over the short term is the potential reversion of value’s underperformance, with BRNA being the most value-orientated trust in its AIC peer group. Outside of the factors we outline in the Performance section, we see near-term tailwinds supporting an economic recovery in the US. Namely, these are an increasing likelihood of economic stimulus under a Biden government, plus a renewed impetus to tackle the COVID-19 pandemic in the US. Both factors are likely to energise economic activity, which could be the catalyst for a value rally. Such a rally could also be supportive of a narrowing discount, as BRNA has been a victim of a broad aversion to value as an investment style.

Bull
Bear
Experienced team of senior portfolio managers, supported by well-resourced analysts
Use of option writing can reduce capital returns
Superior income potential from underlying revenue and the ability to pay out of capital and write options
If the growth-driven market continues, so will the underperformance of BRNA
Case for a reversion in the outperformance of growth over value
Narrow discount relative to its closest income and value focused peers
David Johnson
David is an investment trust analyst and joined Kepler in September 2020. Prior to this he ran multi-asset model portfolios at a discretionary fund manager, and has worked in both asset management and investment banking during his career. He holds a Masters in Finance from the University of Warwick and is a CFA charterholder.

Fund History

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

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