BlackRock North American Income Trust (BRNA) seeks to provide an attractive and growing income plus capital appreciation over the long term, predominantly through investment in large-capitalisation US equities. BRNA’s annual report for the year to 31 October 2017 shows shareholders’ assets of £118 million.
Tony DeSpirito has been co-manager of the trust since 2014. Franco Tapia and David Zhao were appointed co-managers in September, following the February retirement of Bob Shearer. The team is committed to the disciplined application of value investment principles, an emphasis on owning quality and sustainable businesses with good dividend growth prospects, and a long-term investment horizon.
They are expected to hold a well-diversified portfolio of quoted securities and to deploy a derivative overlay strategy predominantly using covered call options. They can also deploy currency hedging and gearing equal to 10 per cent of net assets.
At 31 October 2017 BRNA held 90 equities, of which 72 were US-quoted, and 175 individual open options. The largest sector weightings were financials at 28.2 per cent, healthcare 18 per cent, energy 11.3 per cent and information technology 10.7 per cent, all of which were overweight compared with the benchmark. Writing covered call options detracted modestly from capital gains last year, as is to be expected in a rising equity environment, but enhanced the trust’s income.
NAV total returns of 11.4 per cent exceeded the 8.3 per cent rise in BRNA’s benchmark, the Russell 1000 Value index. Both were suppressed by the weakness of the dollar. With the discount widening to 6.6 per cent, share price total returns were 6.3 per cent. Earnings per share grew 4.6 per cent to 5.41p, and the total dividend was raised 5.3 per cent to 4.95p. Ongoing charges were 1.07 per cent.
The managers are reasonably positive about the investment outlook, and the board is committed to raising the current year’s total dividend to 8p, paid in four equal instalments and funded partly from capital. It is hoped this will attract new buyers and narrow the discount.