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Strong demand for BlackRock North American

Despite lagging its benchmark over the year to 31 October 2019, there was strong demand for BlackRock North American shares. Over the year to 31 October 2019, the NAV returned 8.5% and the share price 15.0%. This compares with a return of 9.8% on the Russell 1000 Value Index. The dividend was maintained at 8p. This was better covered by earnings this year as revenue rose 7.2% to 5.53p – the company has a policy of paying dividends enhanced by transfers from the capital account.

The company reissued 9,525,000 shares from treasury at a premium to NAV for a total gross consideration of £17,252,000. Since the year end, and up to the date of this report, the company has reissued a further 2,805,000 shares at an average price of 189.86p per share and an average premium to the estimated NAV of 1.7%. The shares were trading at a premium of 0.9% to NAV as at close of business on 10 February 2020.

Extract from the manager’s report

The portfolio generated relative outperformance in six out of eleven GICS (Global Industry Classification Standard) sectors during the year, but narrowly underperformed the benchmark. At the sector level, the primary detractor from relative performance was a combination of stock selection and allocation decisions in utilities. Notably, selection decisions in the electric utilities industry proved to be costly, as was an underweight exposure to multi-utilities. Underweight exposure to the real estate sector also detracted from relative returns. We continue to avoid exposure to the real estate sector given our belief that valuations are unattractive at today’s levels. In communication services, stock selection among diversified telecom services providers proved detrimental, and in materials, selection among chemicals firms hampered relative results.

The largest contributor to relative performance was a combination of stock selection and allocation decisions in the energy sector. Stock selection among companies in oil, gas and consumable fuels names drove relative performance within the sector, as did underweight exposure to the energy equipment and services industry. In consumer discretionary, stock selection among multiline retail firms contributed to relative performance and our overweight exposure to the household durables industry proved beneficial. Stock selection decisions in the health care sector also boosted relative returns. Notably, selection in the pharmaceuticals industry contributed to relative results. Overweight exposure to information technology, specifically the software industry, proved a tailwind to relative performance, as did stock selection in both the financials and industrials sectors.

Writing covered call options in an equity environment that was at times volatile contributed modestly to performance during the year. As designed, the Company’s option overwrite component enhanced the portfolio’s income during the period. “

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