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Questor: when Google and Amazon run out of steam, this trust should take up the pace
Questor investment trust bargain: while all Wall Street’s momentum is in growth stocks, BlackRock North American Income takes the opposite approach
The received wisdom is that if you want to invest in the American stock market you might as well use a tracker fund because so many active managers fail to outperform, charging you higher fees in the process.
Questor has a lot of sympathy with this view: the US stock market is the most intensively researched in the world, which makes finding an edge as a fund manager incredibly hard. And, in view of the strong gains made on Wall Street in recent years, a passive fund would have served you very well.
But it’s important to realise that this bull run has been driven by a small subsection of the market: “growth” stocks, and especially the technology giants. If – when – this trend ends, returns from your tracker fund could become much more pedestrian.
In these circumstances it can make sense to diversify your exposure with a fund that takes the opposite approach, particularly if that fund is well managed.
Our candidate for the role is the BlackRock North American Income investment trust, whose “value” style of investing contrasts with Wall Street’s current vogue for chasing momentum in growth stocks.
The trust’s managers look for “attractively valued, competitively advantaged companies with healthy balance sheets and the ability to protect margins, take market share and/or organically grow earnings”. There is a lot of focus on dividend growth, not something that you find from the likes of Facebook and Amazon.
The same management team also runs the $20bn (£16bn) BlackRock Equity Dividend open-ended fund. The performance of this portfolio, which is for US-based investors, has put it in the top 12pc of funds in its peer group over the past five years and in the top 5pc over 15 years, with lower volatility than rival funds and the benchmark index.
Alan Brierley, an investment trust analyst at Investec, the bank, said: “We like the managers’ conservative philosophy and proven track record.”
There is another reason why we should expect the trust to struggle to outperform when markets are exuberant: it uses “derivatives” to boost its income by sacrificing some of the potential for capital gains. In the six months to April 30 this technique generated about a third of the trust’s income. But it also receives dividends from its holdings in the normal way; they were 20pc higher in the period.
Overall, long-term growth in the trust’s dividend has beaten that of its peers and the benchmark index.
The trust currently trades at a small premium but we recommend it as a potentially valuable hedge for those whose American holdings tie them to the fortunes of the tech giants. Or, as Mr Brierley said: “The fund’s defensive characteristics should leave it well placed when the US markets enter a more testing phase.”
Questor says: buy
Ticker: BRNA
Share price at close: 189.75p
Investment trust news
Alexander Darwall, the manager of Jupiter European Opportunities, is to leave the eponymous fund group. However, he is likely to remain in charge of the trust as the board is expected to switch the management contract from Jupiter to a new firm run by Mr Darwall, Devon Asset Management.
Lindsell Train investment trust’s share price has fallen dramatically following the removal of some of the management group’s open-ended funds from the “best-buy” list of Hargreaves Lansdown, Britain’s biggest investment shop. Hargreaves expressed concern about possible conflicts of interest after the Lindsell Train management group took its funds’ stake in the broker to about 12pc.
- Read Questor’s rules of investment before you follow our tips
Witan and Hg Capital, both tipped here in the past, both “split” their shares on May 28. There are now five Witan shares, and 10 Hg Capital, for each old one. Investors should not therefore be alarmed by commensurate falls in the price of shares in either trust.
Two former F&C property trusts have been rebranded to BMO, the management group’s new name. F&C Commercial Property Trust is now BMO Commercial Property Trust, with the new ticker BCPT. F&C Real Estate Investments is now BMO Real Estate Investments and its new ticker is BREI.
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