BlackRock Income Strategies has announced its final results for the year ended 30 September 2015. The period was one that a saw a number of key developments for the trust. A new multi-strategy investment policy was adopted, investment management responsibility was moved from F&C to BlackRock, a nil discount policy was adopted, a tender mechanism put in place and the board committed to a strategy of dividend growth and capital preservation.
The company’s NAV per share fell 4.2% during the year although this also includes cost incurred with realigning the strategy. The company comments that this took place during a period when the market was notably volatile. However, whilst the NAV has fallen by 7.7% since BlackRock were appointed, it has outperformed the Company’s previous composite index (80% FTSE All-Share Index and 20% FTSE World Ex UK Index), which fell by 8.5%.
The company has declared a fourth quarterly dividend of 1.7p bringing the total dividend for the year to 6.54p. The company says that, from 1 October 2015, it intends to set a quarterly dividend rate in the first quarter that will be paid across the first three quarters of the year, with any adjustments that may be required to the total dividends paid for the year to be made to the fourth quarterly dividend.
In terms of portfolio activity, exposure to the UK has been reduced and exposure to Europe increased (the managers say that economic prospects have improved noticeably, helped by the European Central Bank’s Quantitative Easing program),exposure to Japan increased (the managers say that the prospects for corporate profitability in Japan are favourable and that profits could be improved further if we see any further policies either by the government or the central bank aimed at boosting growth and consumption), and the US (a robust economy relative to others in the manager’s view). One area in which the manager has made very little investment has been emerging markets, where the managers say they see various challenges ahead. The one exception to this is in India where the manager believes that changes driven by Prime Minister Modi are very real in their long-term impact, and the fall in energy prices is a significant benefit given India’s dependence on oil imports.
In terms of the company’s fixed income exposure, approximately a quarter of the Company’s available assets have been invested into bond markets. Key exposures are in corporate bonds, both investment grade and high yield. The managers say that, given the focus here is on income generation rather than capital gain, these investments have been made in a highly diversified fashion to ensure that exposures to the debt of any particular company are very small at the overall Fund level.
In terms of outlook, the manager comments that, on either side of the Atlantic unemployment has dropped sharply to around 5% suggesting the need for higher interest rates, but travails in China and further falls in headline inflation have clearly raised questions in the minds of the respective decision-makers. Furthermore, the managers say that interest rates (particularly those in the US) are the basis for valuing all other assets, so the level and direction of travel are a critical ingredient in assessing the prospects for all asset classes. The manager believes that a rate rise sooner rather than later would signal an optimistic assessment on the growth outlook and encourage investors to think longer-term about market prospects, which remain reasonable.
BlackRock Income Strategies reflects on a year of change : BIST