BlackRock Sustainable American Income Trust (BRSA) has released its financial year end results for the 12 month period ending 30 November 2023.
- Over the 12 months BRSA reported a NAV total return of -5.6%, and share price total return of -8.1%, both underperforming its reference index, the Russell 1000 Value Index, which returned -5.0%.
- The two biggest headwinds BRSA faced was its inability to invest in certain communications and technology stocks thanks to their lack of dividend, with the sector dominating the returns of US equities, and its focus on ESG, with the chair describing the period as a “challenging environment for ESG funds”. The single largest detractor came from the lack of exposure to Meta Platforms.
- The largest contributors to BRSA were its positions in Microsoft and non-US listed companies, none of which were present in its reference index.
- Over the year BRSA paid four quarterly dividends of 2.0p per share, for a total pay out of 8.0p per share, in line with its year before.
- Over the year BRSA traded on an average discount of 6.0p per share, with the board utilising its share buyback facility to defend its rating. BRSA repurchased 240,000 shares for a total consideration of £423,000. BRSA finished its financial year on a 10.1% discount, widening from the 7.4% it traded on at its previous financial year end.
- BRSA delivered a superior ESG score versus its reference index, as measured by MSCI, with an overall rating of AA. The company has also delivered on its commitment to achieve a lower carbon emissions intensity than the reference index.
Alice Ryder, BRSA’s chair, commented:
“The Company has faced headwinds as market turbulence and heightened scrutiny from US states has led to a challenging environment for ESG funds, resulting in a negative return and underperformance of the reference index over this period. A key driver for the underperformance was not owning Meta Platforms (Meta) which briefly entered the reference index. We did not hold a position in Meta because historically it did not meet our portfolio managers’ criteria of paying a dividend and also scores poorly from an ESG perspective. There were also headwinds for value stocks, our Investment Manager’s favoured style of investing, and at the end of September the Russell 1000 Value Index had one of the largest price-to-earnings discounts in the last ten years.
“Alongside our investment objective of maximising long-term capital growth and income, we are investing across the breadth of the market in companies that capture sustainable shifts and are responsible businesses within their industry.
“Looking ahead, it is only natural to ask what is in store for the US market for the rest of 2024. On the geopolitical front, the war in the Middle East, ongoing conflict between Russia and Ukraine and structural competition between the US and China will continue to be a key driver of uncertainty for markets and global supply chains. Interest rates also remain elevated, which has squeezed the housing market, business investment and consumer spending. The Fed has signalled that interest rates will remain high until inflation approaches 2% and, even if policy rates have peaked, central banks may not cut rates to levels that stimulate growth any time soon. Despite these headwinds, the US economy has been more resilient than anticipated in 2023 with baseline economic data in the US encouraging due to one of the longest stretches of low unemployment in history and gross domestic product (GDP) growing in the third quarter.
“Against a background of macroeconomic uncertainty and market volatility, our portfolio managers are of the view that an active approach to investing is likely to carry greater rewards. Additionally, our portfolio managers believe quality stocks with higher profitability, stronger balance sheets and stable earnings growth should outperform in an environment of persistent investor concerns over a mild recession in the US and other major developed economies. These are the fundamentals that our portfolio managers continue to favour within your Company’s portfolio.”