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BlackRock North America sets out revised objective

BlackRock North America sets out revised objective – yesterday, the board of BlackRock North American Income Trust published a shareholder circular setting out recommended proposals for the adoption of a new investment objective and investment policy, and notice of a general meeting of shareholders to approve this. The board says that it is keen that the investment objective and investment policy should remain both relevant and attractive to investors as the company moves towards its second decade.

The board’s thinking

Following consultations with shareholders, the board determined that they continue to value the predictable and regular dividend. Hence the company will seek to continue to provide an attractive level of income with capital appreciation over the longer-term. The board also understands that there is a continuing preference for a regional North American focus, with some flexibility to invest globally to enhance diversification, and believes that investors will benefit from expanding the focus beyond the U.S. to North America. The board was mindful of the increase in demand for investment products that place a sustainable investment philosophy at their core. Additionally, the board is of the view that the closed-ended fund structure is well suited to a portfolio comprising selected companies across the large-cap and medium-cap spectrum rather than exclusively large-cap issuers. Lastly, the company has, since launch, written covered call options to provide income to fund the dividend which can now be achieved by utilising reserves. The board considers that this feature may add unnecessary complexity to the portfolio in the eyes of investors and can act as a drag on capital growth. Consequently, the board has determined to cease writing covered call options unless there is a compelling investment case for doing so.

Proposed objective and policy

Investment objective

The Company’s investment objective is to provide an attractive level of income together with capital appreciation over the long term in a manner consistent with the principles of sustainable investing adopted by the Company.

Investment policy

The Company invests primarily in a diversified portfolio of North American* equity securities, with a focus on large-cap and medium-cap companies that pay and grow their dividends. “North America”, in accordance with the United Nation’s publication “Standard Country or Area Codes for Statistical Use”, means Bermuda, Canada, Greenland, Saint Pierre and Miquelon and United States of America and “North American” shall be construed accordingly. The Company may also invest in the equity securities of companies outside North America, subject to the restrictions set out below, and may invest in securities denominated in currencies other than the official currencies of the relevant countries or areas within North America. The Company may also hold other securities from time-to-time including, inter alia, options, futures contracts, convertible securities, fixed interest securities, preference shares, non-convertible preferred stock and depositary receipts (such securities other than equity securities, together “Other Securities”). The Company may also write covered call options in respect of its portfolio.

The Investment Manager adopts a stock specific approach in managing the Company’s portfolio, selecting investments that it believes will both increase in value over the long term and provide income.

The Company does not invest in companies which are not listed, quoted or traded on an exchange at the time of investment, although it may have exposure to such companies where, following investment, the relevant securities cease to be listed, quoted or traded on an exchange.

Typically, it is expected that the investment portfolio will comprise between 30 and 60 equity securities.

Use of derivatives

The Company may invest in derivatives for efficient portfolio management and in options for investment purposes and may, for investment purposes, write covered call options in respect of its portfolio. Any use of derivatives for efficient portfolio management and/or options for investment purposes is made based on the same principles of risk spreading and diversification that apply to the Company’s direct investments.

For the avoidance of doubt, the Company does not enter into physical or synthetic short positions or write any uncovered options.

Risk diversification

Portfolio risk is mitigated by investing in a diversified spread of investments. In particular, the Company observes the following investment restrictions:

  • no single investment (including for the avoidance of doubt, any single derivative instrument), at the time of investment, shall account for more than 10 per cent. of the gross asset value of the Company;
  • no more than 25 per cent. of the gross asset value of the Company, at the time of investment, shall be invested in securities which are not deemed to be North American* securities; and
  • no more than 35 per cent. of the gross asset value of the Company, at the time of investment, shall be exposed to any one sector;
  • no more than 20 per cent. of the gross asset value of the Company, at the time of investment, shall be invested in Other Securities; and
  • no more than 20 per cent. of the Company’s portfolio shall be under option at any given time.

(*Securities may be deemed to be North American securities if: (i) the company’s principal operations are conducted from North America; or (ii) the company’s equity securities are listed, quoted or traded on a North American stock exchange; or (iii) the company does a substantial amount of business in North America; or (iv) the issuer of securities is included in the Company’s Reference Index.)

The Company’s sustainable investment principles

In managing the Company’s portfolio, the Investment Manager, in addition to other investment criteria, takes into account the environmental, social and governance (“ESG”) characteristics of the relevant issuers of securities and seeks to deliver a superior ESG outcome versus the Reference Index by aiming for the Company’s portfolio to achieve: (i) a better ESG score than the Reference Index; and (ii) a lower carbon emissions intensity score than the Reference Index. The “Reference Index” is the Russell 1000 Value Index or such other index as may be agreed by the Company and the Investment Manager to be appropriate from time to time. However, there can be no guarantee that these aims will be achieved and the ESG rating of the Company’s portfolio and its carbon emission intensity score may vary.

The Investment Manager also applies a screening policy (currently the BlackRock EMEA Baseline Screens policy) at the time of investment through which it seeks to limit and/or exclude direct investment (as applicable) in companies which, in the opinion of the Investment Manager, have exposure to, or ties with, certain sectors (in some cases subject to specific revenue thresholds) including but not limited to:

(i)   the production of certain types of controversial weapons;

(ii)   the distribution or production of firearms or small arms ammunition intended for retail civilians;

(iii)   the extraction of certain types of fossil fuel and/or the generation of power from them;

(iv)   the production of tobacco products or certain activities in relation to tobacco-related products; and

(v)   issuers which have been deemed to have failed to comply with United Nations Global Compact Principles.

Following application of the screening policy outlined above, those companies which have not yet been excluded from investment are then evaluated by the Investment Manager based on their ability to manage the risks and opportunities associated with ESG-consistent business practices and their ESG risk and opportunity credentials, such as their leadership and governance framework, which is considered essential for sustainable growth, their ability to strategically manage longer-term issues surrounding ESG and the potential impact this may have on a company’s financials. To undertake the required analyses, the Investment Manager may use data provided by external ESG data providers, proprietary models and local intelligence and may undertake site visits.

Should holdings which are compliant with the screening policy applied by the Investment Manager outlined above at the time of investment subsequently become ineligible, they will be divested within a reasonable period of time.

The Company may gain limited exposure (including, but not limited to, through investment in other listed closed-ended investment funds and derivatives) to issuers with exposures that do not meet the sustainable investment principles described above.

Circumstances in which such exposure may arise include, but are not limited to, where a counterparty to a derivative in which the Company invests posts collateral which is inconsistent with the Company’s sustainable investment principles or where a fund in which the Company invests does not apply any or the same sustainable investment principles as the Company and so provides exposure to securities which are inconsistent with the Company’s sustainable investment principles. The Investment Manager may take corrective action in such circumstances.

Borrowing and gearing policy

The Company may borrow up to 20 per cent. of its net asset value (calculated at the time of draw down), although typically borrowings are not expected to exceed 10 per cent. of its net asset value at the time of draw down. Borrowings may be used for investment purposes. The Company has entered into a multi-currency overdraft facility for this purpose. The Company may enter into interest rate hedging arrangements.

Currency hedging

The Company’s foreign currency investments are not hedged to Sterling as a matter of general policy. However, the investment team may employ currency hedging, either back to Sterling or between currencies (i.e. cross-hedging of portfolio investments).

Further investment restrictions

In order to comply with the current Listing Rules, the Company also complies with the following investment restrictions (which do not form part of the Company’s investment policy):

  • the Company will not conduct any trading activity which is significant in the context of its group as a whole; and
  • the Company will not invest more than 10 per cent. of its gross asset value in other listed closed-ended investment funds, whether managed by the Investment Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15 per cent. of their gross assets in other listed closed-ended investment funds.

Change of name

The Board intends to change the name of the Company to ‘BlackRock Sustainable American Income Trust plc’ following the General Meeting, as it believes that it better reflects the proposed investment objective and policy of the Company. The change of name is subject to the new investment objective and policy being approved by shareholders.

Changes to the investment policy

No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.

BRNA : BlackRock North America sets out revised objective

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