BlackRock North American Income Trust plc

Meet the team

Understanding the nuances
of investment

Technology is a key interest for David Zhao, co-director of research and portfolio manager of the BlackRock North American Income Trust, but new doesn’t always mean better.

David Zhao

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. You may not get back the amount originally invested.

David, who began his career as an analyst covering technology mergers and acquisitions, has now built up 19 years of investment experience and has worked across many sectors, including technology, US banks, medical technology, non-life insurance and financial technology.

At BlackRock, his role is to work closely with research analysts to prioritise new investment ideas, to ensure research best practices are followed and to help develop the team’s collective investment talent. He also has research responsibilities for the technology and financial services sectors.

Nuanced investment style

David’s experience has given him a nuanced perspective on value investing. “What I’ve learned is that, broadly, value investors seek to identify companies that are trading at prices below their true intrinsic value and earnings power. However, someone’s investment philosophy can have a significant impact on their overall style. For example, value investors can incorporate a dividend discipline, varying degrees of quality hurdles, or be more focused on companies with deeply discounted valuations (i.e. ‘deep value’).

“Over time, I have developed a greater appreciation for buying underappreciated quality companies versus companies characterised as deep value. The key difference relates to sell discipline – the decision-making process for selling a deep-value company is more complex and variable in regards to gauging changes in relative valuations and investor sentiment.”

Meeting the challenge

David says that, as a Trust portfolio manager, the persistently high correlation of returns across US stocks in recent years has been a frustration. “In our view, macroeconomic factors were the driving force behind US stock returns, not company fundamentals, and this made it harder to assess performance between stronger and weaker companies. For active managers, like ourselves, who construct portfolios through fundamental research and stock selection, it added an extra degree of challenge.

Another challenge relates to the Trust’s strategy of writing (selling) covered call options on common stocks. “This can be a useful strategy for increasing our client’s income and lowering the volatility of the Trust’s returns through a full market cycle,” says David. “But as the Trust writes more covered call options, its ability to benefit from capital appreciation becomes more limited. This has proved to be challenging amid strong US equity market returns and low absolute levels of stock market volatility since the Trust’s inception.”

Standing the test of time

Despite the challenges, David says that the North American Income Trust is a pleasure to manage. He particularly enjoys that the portfolio managers have frequent opportunities to engage with the Trust’s board of directors, as well as end clients. Away from work, when not busy being a dad to two small children, David furthers his interest in utilising and learning about the latest in technology – he studied computer information systems at Northwestern University in Illinois – but despite the attraction of new tech, he admits he still has a fondness for the Linux operating system, which he uses on his home personal computer.

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Taking advantage of data

Co-director of research and portfolio manager Franco Tapia explains why managing the BlackRock North American Income Trust relies on data, technology and in-depth research.

Tapia Franco

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. You may not get back the amount originally invested.

Franco Tapia has 18 years of investment experience and an impressive background. He holds an MBA from The Wharton School of the University of Pennsylvania, where he graduated as a Palmer Scholar. He also holds an economics degree from Harvard University where he graduated with honours. He began his career as a consultant at what is now IBM Strategy and Analysis and before joining BlackRock in 2016 was a senior equity research analyst and portfolio manager, covering IT services and hardware, Emerging Markets (EM) banks, US real estate investment trusts, US property and casualty insurance and US retail, as well as being an EM and US small-cap generalist.

Research focus

Along with his colleague David Zhao, Franco is now a co-director of research for the US Income and Value Research Pillar within BlackRock’s Fundamental Active Equity business. They are also portfolio managers for all BlackRock Equity Dividend Strategy portfolios, including the BlackRock North American Income Trust.

Like David, Franco works closely with research analysts to prioritise new investment ideas, to ensure research best practices are followed, and to help develop the team’s collective investment talent.

Economic view

Franco says the team has observed weakening fundamentals in sectors like consumer staples. “In our view, greater competitive pressures from niche brands in the US and local brands in emerging markets, combined with changes in consumer preferences towards online retail and health and wellness, were disrupting traditional business models.

“Our research suggested these dynamics had the potential to negatively impact the earnings power of affected companies and further affirmed our conviction in being underweight to traditionally defensive stocks,” he says.

Benefits of data

Franco says his career has given him a deeper appreciation for the advantages that data and technology can unlock when properly integrated into an investment process. “For example,” he says, “I can build greater conviction in an investment idea when our team’s fundamental research is supported and confirmed by the outputs from our quantitative research screens and BlackRock’s other data capabilities. Access to the most robust data sets and the latest technology are notable benefits to being an investor at BlackRock,” he says.

A walk in the park?

Franco says that managing the Trust is a challenge but with three children under the age of six, he’s used to multi-tasking. And while his role could never be described as a walk in the park, on warm summer evenings or weekends Franco can often be found doing exactly that – pushing baby strollers through New York’s Central Park.

Risk Warnings

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Trust specific risks

Exchange rate risk: The return of your investment may increase or decrease as a result of currency fluctuations.

Risk to capital through derivative use: The Fund may use derivatives to aim to generate more income. This may reduce the potential for capital growth.

Capital growth/Income variation: Investors in this Fund should understand that capital growth is not a priority and values may fluctuate and the level of income may vary from time to time and is not guaranteed.

Derivative risk: The Fund uses derivatives as part of its investment strategy. Compared to a fund which only invests in traditional instruments such as stocks and bonds, derivatives are potentially subject to a higher level of risk.

Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Important Information:

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: +44 (0)20 7743 3000. Registered in England and Wales No. 2020394. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited.

BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the fund specific risks in the Key Investor Document (KID) which gives more information about the risk profile of the investment. The KID and other documentation are available on the relevant product pages at We recommend you seek independent professional advice prior to investing.

The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

The BlackRock North American Income Trust plc currently conducts its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

Any research in this material has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This material is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

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