BlackRock American Income’s (BRAI) new systematic stock-picking approach has gone down well with investors after a positive re-rating of the investment trust’s shares.

Annual results show the £134m closed-end fund made a 22% underlying investment return from 17 April, when the data-crunching quantitative process was applied, up to the financial year-end of 31 October. Shareholders received a bit less, at 19.1%, but both beat the 18.3% total return of its benchmark, the Russell 100 Value index.

Over the full 12 months, which included a volatile first half as markets anticipated the launch of US tariffs and the dollar plunged, the portfolio of cheap value stocks grew net asset value by 11.5%. Shareholders enjoyed almost double this at 20.9%, as the shares raced ahead and narrowed the gap, or discount, between the share price and NAV from 12% to 5%.

Chair David Barron said the “successful delivery of an attractive long-term investment proposition” and efforts to communicate the advantages of systematic active equity investing were key in the trust’s re-rating.

A switch to a higher dividend, with 1.5% of net assets paid out each quarter, mostly from capital rather than income, had also helped, as had the prospect of a 100% tender offer, or full exit opportunity, if the trust did not beat its benchmark by 0.5% a year on average over three years. 

Improved investor demand as a result of these changes has seen the discount come in further to just 1%. As of yesterday’s close, the 5%-yielding shares have trounced the main US benchmark, the S&P 500, over one year with a 21% return compared to the 6% sterling rise in the index, according to Winterflood data. While that outperformance is flattered by the narrowing discount, the underlying NAV return of 12% is still double the US stock market. That’s good news for a trust that had struggled to outperform in previous years.

Fund managers Travis Cooke and Muzo Kayacan, who replaced Tony DeSpirito, David Zhao and Lisa Yang when the change in approach was made, said that overweight positions in tech and banking stocks had made the biggest contribution to performance, with most of the detractors found among energy and real estate companies.

At 30 November, the trust’s top holdings were Alphabet (4.8%), JPMorgan Chase (3.1%), Amazon (2.9%), Berkshire Hathaway (2.8%) and Walmart (2.6%), the supermarket chain that has just achieved a $1trn valuation.

They pointed out that in dollar terms the S&P 500 had risen 20% since the trust’s half-year report. Value stocks, while positive, had lagged the market but offered investors good diversification as a handful of mega-cap growth stocks dominated the S&P amid intense AI speculation.

“By following diversified, balanced approach, we seek to ensure that we build portfolios that can generate positive outcomes regardless of the environment,” they said.

Our view

QuotedData’s James Carthew said: “This is a good start for BRAI’s new approach, with decent outperformance of its benchmark and growth in its dividend, plus the closing of its discount pushing up the share price. Moreover, for investors who are nervous about the concentration of risk within the S&P 500 but still want to be invested in the US, BRAI is a useful way of achieving a more diversified exposure.”

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