NORTH AMERICAN INCOME: The fund that Trump needs to succeed
Not even the somewhat conservative portfolio underpinning investment trust North American Income has protected shareholders from the sharp market correction in the US triggered by the coronavirus.
Over the past month, its share price has fallen by an alarming 30 per cent and fund manager Fran Radano has little idea where the price will go from here.
‘If you look at the low interest rate backdrop as well as the fiscal and tax policies pursued by President Trump,’ says Radano, ‘they’re all favourable. And Trump will do all he can to ensure everything is shipshape come the US election in November because he needs a strong economy and stock market to get him over the line.
‘But coronavirus is the wild card. It could threaten his re-election if the impact on the stock market and the economy is anything but temporary.’
The rising sun reflects off the skyline of lower Manhattan in New York City
Radano believes the country’s economy will grow by no more than one per cent in the first quarter of this year. ‘Many companies are at a standstill,’ he adds, ‘and most consumers are paralysed by what is happening.’
Yet, if the coronavirus issue can be put ‘to bed’ sooner rather than later, Radano believes the economy and equity market could bounce back quickly, especially if supported by a consumer boost from payroll tax cuts promised by Trump in recent days.
Radano runs the £380 million North American Income fund from Philadelphia in the United States on behalf of UK asset manager Aberdeen Standard Investments. Over the past week, he has been in the UK, meeting advisers in London, Bristol and Edinburgh and talking about the trust in a world dominated by the coronavirus issue.
The fund is not invested in any of the so-called ‘FAANG’ stocks – Facebook, Apple, Amazon, Netflix and Alphabet (Google).
Instead, as its name implies, it is invested in companies that are renowned for paying shareholders a regular – and growing – dividend. Most are part of the S&P 500 Index that measures the stock market performance of the country’s largest companies by market capitalisation.
‘We have a portfolio comprising 40 equities,’ says Radano. ‘They represent our best ideas and they are held on the basis they will deliver an income of at least two per cent a year, often more.
‘Yes, occasionally a company we hold may cut its dividend. But overall we’ve increased the income we pay to shareholders every year for the past five years and we have nearly a year of income in reserve in case we need to draw upon it to top up our dividend payments. It’s a good position to be in given the uncertain times we live in.’
Holdings include familiar brands such as banking group Citigroup, tobacco giant Philip Morris and drinks company Coca-Cola. The overall dividend income paid by the trust is equivalent to 3.4 per cent a year – with dividends paid quarterly.
Recent falls in the trust’s share price have impacted on the performance numbers. Over the past year, the trust has recorded overall losses of 20 per cent, but over five years the overall return (capital growth plus income) is a more reassuring 51 per cent. The trust’s annual ongoing charge is 0.95 per cent.
One feature of the trust’s performance in recent weeks has been its share price moving in line with the fund’s underlying assets. This is a result of the trust’s determination not to allow shares to trade at a discount that would impact adversely on those wanting to sell their holdings.
Stock exchange identification code: BJ00Z30.