North American Income Trust delivers healthy revenue despite COVID – North American Income Trust has published results for the year ended 31 January 2021. Over the period, the NAV total return was -5.7% and the return to shareholders -16.5%. This underperformed the -0.1% return in sterling terms from the Russell 1000 Value Index and the 12.6% return from the more growth-orientated S&P 500 index. The trust managed to increase its income per share, however, going from 11.4p to 11.8p. From that it declared an increased dividend of 10p (up from 9.5p). 73% of the equity holdings raised their dividends over the past year, with a weighted average increase of 7.4%. Only two companies within the portfolio made dividend cuts during the year. [We think that this result speaks volumes about the manager’s stock selection. Many other funds were forced to dip into revenue reserves last year.]
Fee cut
NAIT has a sliding scale of fees. From 1 May 2021 the value of the assets that will be subject to the highest tier of fees, of 0.75%, will be reduced from £350m to £250m. Assuming that net assets remain greater than £350m, this will save the company £150,000 per year and will mean that its fees are among the most competitive in the peer group.
Extract from the manager’s report
“The Trust’s underperformance relative to the reference index for the review period was attributable mainly to an underweight allocation to the communication services sector, as well as stock selection in utilities and consumer staples. The primary detractors from performance included financial services company Citigroup; oilfield services provider Schlumberger Ltd.; and Ohio-based regional utility FirstEnergy Corp. Citigroup entered a consent order with US regulators in which the company agreed to pay a fine and fix the deficiencies in its risk management systems. CEO Michael Corbat retired from the Board and was succeeded by Jane Fraser – the first female CEO to lead a major U.S. bank – in March 2021. Shares of Schlumberger declined along with the oil price over the review period. We exited the Trust’s position in the company in May 2020. Shares of FirstEnergy Corp. sold off after the US government alleged that the company had contributed to a non-profit political action committee in exchange for government subsidies for nuclear power plants owned by its former subsidiary, FirstEnergy Solutions. We subsequently sold the Trust’s shares in the company in October 2020.
An underweight position in the utilities sector and stock selection in the technology sector aided the Company’s performance for the review period. The largest individual stock contributors were pharmaceutical firm Abbvie; transportation and logistics company United Parcel Service; and financial services company JPMorgan Chase & Co. Abbvie posted strong results in 2020 bolstered by strength in its Immunology Portfolio and Hematologic Oncology segments. UPS saw healthy year-over-year revenue and earnings growth for the second quarter of its 2020 fiscal year as improving pricing power helped drive revenues and reinforce their supply chain strength. However, following a period of strong share-price performance we subsequently exited the Trust’s position in UPS in December 2020.”
NAIT : North American Income Trust delivers healthy revenue despite COVID