The North American Income Trust

Defensive income with attractive entry point

Background: The North American Income Trust* (NAIT) aims to deliver dividend income and long-term capital growth through active management of a portfolio consisting predominantly of US equities. The manager has a quality, value and income bias and constructs the portfolio on a high conviction basis. Every stock in the portfolio generates income, and the fund has grown its dividend each year since June 2015, when Fran Radano joined its management team. 



Portfolio: As at 30 June 2023, the portfolio contained 37 stocks, within the typical range of around 35-40 positions. Its high conviction approach is reflected by a top 10 concentration of 38.5%, with the largest holding, Baker Hughes, representing 5.2% thereof. The fund is diversified across sectors, with the largest allocations being Financials (21.2%), Health Care (16.0%) and Energy (11.5%).



Performance: Over the last five years, NAIT has delivered a NAV total return of +30%, underperforming the +45% return of the Russell 1000 Value Index as well as the +113% return of the North American peer group and +41% of its closest peer, BlackRock Sustainable American Income (BRSA). The fund has, however, delivered 11 consecutive years of dividend growth. Moreover, the fund’s dividend yield was 3.75%, with an annualised dividend growth of around 8% since FY13.



Winterflood View



Value sentiment weighed on returns: After a period of outperformance in 2022, The North American Income Trust once again faces a market that is not particularly supportive of value and income mandates. It has also underperformed its benchmark and peer group over the last 1, 3 and 5 years. That said, the shares are currently trading at a discount of 11%, which is significantly wider than its 12-month average of 9%, as well as the 7% discount of its closest peer, BlackRock Sustainable American Income (BRSA), which it has outperformed on a NAV total return basis over the past year (+1.4% vs -0.6%). Hence, the current rating represents an attractive entry point for investors looking for US value exposure and a steady, progressively increasing income stream. Moreover, we think there is scope for a re-rating should market sentiment towards value and income mandates return in the event of a harder than expected landing in the US, or if interest rates remain elevated for some time.



Delivered on dividend policy: NAIT has delivered on its progressive dividend policy, by growing its dividend each year since the manager’s appointment in 2015, while ensuring revenue reserves are available in the event of a market downturn. This track record is commendable in our view, and is representative of the prudent capital management approach adopted by the portfolio manager, Fran Radano. We view it as a positive that the fund has been steadily building its revenue reserves to cover over a year’s worth of dividends at the time of writing. Should we see a harder landing than that priced in by the markets, the fund should stand in good stead to given its quality, defensive positioning. Moreover, it may capture additional investor attention by delivering income growth outstripping inflation.