Earlier this year passive fund Edinburgh US Tracker changed its mandate to become an active US equity income investment trust. Under its new mandate, the trust, now known as North American Income Trust, aims for above average dividend income and long-term capital growth. It is targeting an initial annual net dividend yield of 3.5 per cent, which in the first year this will be paid semi-annually, and thereafter four times a year.
- Attractive dividend target
- Opportunity to buy at a discount
- Reasonable charges
- Good manager
- No guarantee trust will meet new objective
- Ability to take on debt raises risk profile
Many income bearing investment trusts trade on a premium to net asset value (NAV) but North American Income Trust is on a discount of nearly 6.91 per cent. However, this is likely to change so it is a good time to get in. "We are recommending this fund for two key reasons," say analysts at broker Winterflood. "We believe that an equity income investment approach should prove advantageous in the current market environment. In addition, we believe that the fund's current discount of over 6 per cent looks attractive. We would expect North American Income Trust's discount to tighten as its shareholder base is refreshed and its dividend record established."
The trust's board has said that it expects to control the discount with share buy-backs if it exceeds 5 per cent for any significant time.
Although North America has not been traditionally considered to be a good place to get income because the average yield on the S&P 500 is not high, individual companies pay good dividends and North American-listed shares already form an important component of some global equity income funds, including IC Top 100 Fund M&G Global Dividend.
Read more on North American equity income
North American Income Trust now uses the same investment process that its manager Aberdeen uses across all its regional teams, which involves identifying quality companies via research and numerous company visits. The investment teams look at company details such as business prospects and strategy, management team, financial strength and transparency, and commitment to shareholder value.
| IC TIP RATING | |
|---|---|
| Tip style: | INCOME |
| Risk rating: | HIGH |
| Timescale: | LONG TERM |
Price is a secondary consideration and an investment is made when a company's share price seems to offer relative value. The investment approach is not style specific but has an emphasis on companies that have the ability to grow their dividends.
The trust will mainly invest in S&P 500 shares but can also put up to 20 per cent of its assets in fixed income, and currently has around 15 per cent in this area. It can also buy Canadian and US mid- and small-cap shares to diversify its sources of income.
The trust's portfolio transitioned to the new investment objective in early June and the costs of the changes are not expected to exceed 0.3 per cent of net assets.
Like other actively managed investment trusts, North American Income will be able to take on debt, but while this could help returns it also raises the trust's risk profile.
There is no guarantee that the trust will meet the aims of its new mandate, but it is being run by an experienced and well staffed investment team. The trust's charges will also rise as it moves to active management. However, Aberdeen says that the total expense ratio (TER) is not expected to exceed 1.1 per cent of net assets. This is a much more reasonable charge than is levied by a number of the open-ended US equity income funds, another reason why this investment trust is a good way to access US income. Buy.
NORTH AMERICAN INCOME TRUST (GB0000293620) | |||
| PRICE: | 687.33p | GEARING: | 98% |
| AIC SECTOR: | North America | NAV: | 735.31% |
| FUND TYPE: | Investment trust | PRICE DISCOUNT TO NAV: | -6.91% |
| MARKET CAP: | £215.95m | PRICE PERFORMANCE SINCE CHANGE OF STRATEGY:** | 1.8%* |
| No OF HOLDINGS: | 68* | 3-MTH PRICE PERFORMANCE: | -2.1%* |
| SET-UP DATE: | 1902* | 6-MTH PRICE PERFORMANCE: | 5.4%* |
| ONGOING CHARGE: | 0.38% | MORE DETAILS: | invtrusts.co.uk |
| YIELD: | 1.37% | ||
Source: Morningstar & *Aberdeen Asset Management. **As at 31 May 2012
Performance data as at 30 June 2012
Top 10 equity holdings as at 30 June 2012
| Verizon Communications | 3.6 |
| ConocoPhillips | 3.2 |
| Chevron | 3.1 |
| Telus | 3.1 |
| CMS Energy | 3.0 |
| Intel | 3.0 |
| Johnson & Johnson | 3.0 |
| Bristol-Myers Squibb | 2.7 |
| Lockheed Martin | 2.7 |
| Republic Services | 2.7 |
Sector allocation as at 30 June 2012
| Consumer staples | 21.3 |
| Financials | 14.9 |
| Energy | 12.5 |
| Healthcare | 9.9 |
| Telecommunication services | 8.0 |
| Industrials | 8.0 |
| Information technology | 7.9 |
| Consumer discretionary | 6.6 |
| Utilities | 6.1 |
| Materials | 4.8 |
