An investment overhaul has paid off for BlackRock American Income as its ‘systematic’ strategy drags it out of a performance slump.

The £135m trust has put its drawn-out period of underperformance behind it, racking up a net asset value (NAV) total return of 11.5% and share price gain of 20.9% in the year to end of October, comfortably beating the 8.4% return from its Russell 1000 Value benchmark.

Over three years, BRAI still lags its North America sector with a NAV return of 25% versus 42% and a share price return of 31% versus 54%, but the latest results are testament to the change in strategy last year.

Early in 2025, Travis Cooke’s trust moved to a ‘systematic’, or quant-driven, investment process, in a first for the investment trust industry, harnessing the power of ‘big data’ and artificial intelligence (AI) alongside manager expertise.

David Barron, chair of BRAI, said the shift was ‘truly innovative’ and has resulted in a narrowing of the fund’s discount from 6.6% when the strategy change was announced to 1.2% as of today.

Barron said returns were underpinned by BRAI’s ‘diversified exposure to US value stocks beyond the US mega-cap names and its enhanced income’, which make it a ‘truly differentiated proposition’.

Investors received dividends of 11.7p per share, reflecting three quarterly payments at a rate of 6% of NAV and one payment made under the previous investment policy. The total dividends paid represented a yield of 5.4%.

Cooke, who manages the portfolio with Muzo Kayacan, said since adopting the new approach in April last year, ‘the broadly speculative and risk-seeking market environment saw quality-focused signals struggle’ and ‘stable companies with low expectations for defaulting on their debt did not fare well’.

However, the strategy steered the portfolio ‘towards some investment banks, which benefited from buoyant markets and expectations for deregulation’.

‘Meanwhile, signals that favour stocks which are not seeing significant shorting activity helped to inform overweights in a number of semiconductor firms, which benefiting from AI-related enthusiasm,’ said Cooke.

Financials are the largest exposure in the portfolio at 21.6% and contributed positively over the year, despite not owning Wells Fargo, where shares rose 35%. Cooke said the bank scores ‘negatively on both quality and investor sentiment metrics’.

Cooke is, however, overweight to Morgan Stanley, which ‘looks particularly attractive on signals focusing on momentum in fundamentals’.

Within the IT sector, which represents 14.5% of the portfolio and the largest overweight position, Cooke likes networking company Arista Network. He said the ‘hardware industry looks attractive as a result of macroeconomic data and strong cashflows, while shorting activity is muted’.

Cooke said despite the ongoing strength in the S&P 500, ‘value stocks have lagged the market’ and ‘some of our signals that focus on fundamental financial indicators and quality have struggled’.

However, the ‘structural value exposure’ of the portfolio does act as a diversifier to the broader market which is dominated by mega-cap growth names.

‘History suggests that fundamentals and quality can only be ignored for so long, especially when more speculative areas of the market get ahead of themselves,’ he said.