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BlackRock faces axe from £326m Income Strategies mandate

BlackRock faces axe from £326m Income Strategies mandate

The board of the £326m BlackRock Income Strategies trust is considering replacing BlackRock less than 20 months since the firm took over from F&C.

The review follows the announcement in August that the board would review the trust's investment objective, citing a lack of viable income investment opportunities and the UK’s decision to leave the EU.

The board said it has now decided to “undertake a strategic review and to invite fund management groups, including BlackRock, with both established multi-asset management credentials and the experience of managing listed closed-end funds, to present proposals to the board”.

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BlackRock took up management of the trust in February 2015 from F&C after ongoing underperformance, and shifted away form a UK equity mandate to a multi-asset income strategy.

The vehicle was renamed BlackRock Income Strategies being formerly known as the British Assets trust.

However, since this change, the board said lower interest rates and fewer investment opportunities suited to the portfolio’s approach made it difficult to meet the total return target.

While the investment company has delivered a 6 per cent yield over the past 12 months, the NAV has declined by 15.4 per cent since the change in mandate.

Figures from Numis Securities show the fund is currently trading at 9.4 per cent discount and its share price has dropped by 14.7 per cent year to date in 2016 on a total return basis.

Charles Cade, head of investment companies research at Numis, said that he was surprised the board would look for new management so soon after moving the mandate to BlackRock.

However, he noted that the strategy has faced a number of headwinds since the management change, including the pressure to deliver a high dividend pay-out at a time when long term rates are falling.

Mr Cade did not back the sacking of BlackRock.

“In our view, the appointment of another multi-asset manager would not solve the fund’s problems and a more radical overhaul of its mandate and dividend policy is required,” he said.

“The obvious solution is to hold a placing of this stock at a specified discount, underwritten by the company’s buyback. However, this will not be possible for BlackRock Income Strategies until there is greater certainty over the company’s future management, strategy, dividend policy and discount controls.”

Mr Cade also warned that there could be a rush for shareholders to exit the fund if the board were to make the offer.

The board said that it would release a further announcement ahead of the publication in December of its results to September 30.