The £319m BlackRock Income Strategies trust is to review its investment objective less than 18 months after it was introduced, citing a dearth of suitable opportunities.
BlackRock replaced F&C as the manager of the trust, formerly known as British Assets, in February 2015, switching the vehicle from a UK equity mandate to a multi-asset strategy in the process.
The board said this morning (August 1) the trust now needed to review its investment objective, given the lower interest rates and “prevailing market conditions and investment outlook” seen in recent months and since June’s EU referendum.
Targeting a total return of CPI inflation plus 4 per cent each year over the medium term, the trust also aims to preserve capital in real terms and grow its dividend at least in line with inflation.
Manager Adam Ryan has struggled since taking over the portfolio, losing 11.2 per cent as of the end of June. The vehicle currently trades on a 2.8 per cent discount to NAV.
Numis, the broker, noted the trust has suffered because 40 per cent of its assets are allocated to UK equities via Mark Wharrier’s Income & Growth trust, which has underperformed the FTSE All-Share by 6 percentage points year-to-date.
The trust also hedges its currency exposure to overseas assets, meaning it has been unable to benefit from the weakness in sterling seen since the vote.
The board said: “Since the implementation of the new investment objective and policy, interest rates have fallen and there has been a significant decline in the universe of investments which could support a multi-asset approach to meeting the stated investment objective and total portfolio return target.”
“Although in the last 12 months the company has paid dividends which represents a dividend yield of 5.6 per cent, since the change in investment objective and policy the company’s NAV has declined by 14 per cent.
“For this reason the board believes a review of the investment objective and policy is merited. “The board is working with BlackRock to review the investment objective and policy and will announce further details when the review has been concluded.”
Numis head of investment companies research Charles Cade added: “It is notable that Aviva is the largest shareholder in the company with a 13.3 per cent stake, and we believe that it has been seeking an exit.
“The board has provided no details on the timing of its review, but we would hope that it will be relatively short in order to reduce uncertainty for shareholders.”
The board also said it had suspended share buybacks until the completion of the review.
