Investment Trusts

What does the future
hold for US markets?

As the 45th president of the United States settles into the role, BlackRock North American Income Trust co-manager Tony DeSpirito talks about the future for the North American markets in the wake of a new political and economic environment.

What impact is a Donald Trump presidency having on North American share values?

The initial positive reaction from the North American stock markets to the election has slowedi. Much of the early enthusiasm was driven by the belief there will be an overall reduction in taxes to stimulate the economy following pledges made in Trump’s tax planii as well as the prospect of deregulation - prompting business investment and economic growth. However we have yet to see tax cuts and deregulation come into effect, which may be behind the recent slowdown in growthiii.

One interesting consequence of the Trump election is the industries that prospered over the past few years – notably the utilities and telecoms sectorsiv – have struggled in the immediate aftermath of the election result. Known as ‘bond proxies’, these companies did well when investors could not source the income they needed from buying bonds and looked to shares instead. But since the election proxies have suffered as returns from actual bonds have risen in the expectation of higher interest rates. 

Which companies show promise in terms of delivering sustainable income and growth?

We generally prefer companies that can grow their dividends sustainably over those that offer a high dividend yield, i.e. the annual income stream an investor can expect to receive (usually expressed as a percentage of the share price). We continue to favour financial and healthcare companies, particularly large pharmaceutical and health-insurance companies. Reference to the names of each company mentioned in this communications is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies.

We are also interested in more mature technology companies and even though utilities stocks have been sold off post-election, we feel some of that activity has been extreme and it has created some good opportunities.  

Past performance is not indicative of future results. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed.

How important is it to retain a long-term view on North America?

There are a significant number of short-term influences on the marketplace but we are looking over longer periods of three to five years so we have to ensure they do not distract us. As such, we have not shifted the portfolio following the election outcome. We benefitted from how the Trust had been positioned over the past 18-24 months because we were already investing in financial and technology stocks and we had avoided bond proxiesv. These decisions were based on our knowledge of those sectors rather than being influenced by the election. Our investment approach means we look more at what is driving individual companies; their strengths and weaknesses, management teams and balance sheets.

What have changes to US interest rates meant for investors?

As expected, the Federal Reserve Bank raised interest rates in March this yearvi. Rate rises should be of distinct benefit to the financial sector because rising interest rates allow banks’ margins to expand. However, they also put pressure on utilities and consumer staples – the bond proxies – because investors may sell their shares and return to investing in bonds.

In spite of rate rises generally reflecting improvements in the economy, US GDP growth has been slower than expected this yearvii while productivity slowed from 3.3% to 1.3% between the third and fourth quarters 2016viii.

What is on your wish list for North American economic and fiscal policies?

While we have seen an increase in interest rates this year it has not been as easy for the Trump administration to put through tax cuts. Tax cuts should encourage growth and I am hopeful that will play out as more of Trump’s policies become clear.

To take advantage of BlackRock’s experience and to learn more about the opportunities presented by a pro-growth environment, please visit here.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of April 2017 and may change as subsequent conditions vary.

i Reuters, April 2017
ii Donald J Trump, December 2016
iii Trading Economics, As at end of February 2017
iv Bloomberg, November 2016 and Bloomberg, January 2017
v BlackRock, December 2016
vi Trading Economics, as at 15 March 2017
vii Trading Economics, as at 28 February 2017
viii Trading Economics, as at 2 February 2017

Annual performance
(%) to last quarter
end (GBP)
BlackRock North American Income Trust plc NAV 36.90 4.02 18.50 3.70 15.37
Russell 1000 Value TR GBP 37.04 1.69 22.78 10.73 20.23

Source: BlackRock, as at April 2017. BlackRock performance figures are calculated on a total return basis with net income reinvested including management & operating charges and any performance fees.

Past performance is not indicative of future results. It is not possible to invest directly into an index. 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.

Trust specific risks: Overseas investment will be affected by movements in currency exchange rates. Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall. The trust may use derivatives to aim to generate more income. This may reduce the potential for capital growth. Investors in this trust 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. The trust 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.

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