After indifferent recent performance, Bankers Investment Trust’s (BNKR) Alex Crooke explains the shift towards a more value-focused strategy for the trust.

The slight change of approach has not altered the long-term target to achieve capital gains better than those of the FTSE World index as well as annual dividend growth which is ahead of inflation.

A SHIFT IN APPROACH

Bankers only invests in stocks, rather than other asset classes, the technology sector makes up 14.3% of the portfolio.

Crooke says: ‘We don’t invest in asset classes like fixed income or property. Over the last 10 years we have been growth orientated in a negative/zero interest rate environment. Since December 2022, however we have changed our investment strategy, focusing now more on value with a blended approach.’

Crooke explains this approach has been accompanied by a change of investment manager in the US, with greater exposure to the healthcare space and names like UnitedHealth Group (UNH:NYSE).’

Other sectors which feature predominantly in the trust are financials (17.8%) – among them American Express (AXP: NYSE) (1.20%) and Visa (V:NYSE) (1.10%), Industrials (17.6%) and Consumer Discretionary (15.5%).

‘We will be focusing on trying to reposition the trust, so it has more exposure to the consumer discretionary and consumer staples and industrials side over the next five to 10 years,’ says Crooke.

And on a macro level, Crooke believes interest rates will stay ‘higher for longer’ which will put pressure on ‘high growth’ names. ‘There are also challenges ahead for global central banks, perhaps a “tightening of belts” when it comes to regulation considering the Silicon Valley Bank crisis,’ says Crooke.

A BIG WEIGHTING IN US STOCKS

Crooke says: ‘We invest in companies listed throughout the world. Although we are quite US-centric. The US stock market has led the way relative to the rest of the world in nine of the last 10 years. The company’s philosophy of diversification, investing across the globe has benefitted our investors.’

The trust has a 37.6% weighting to North American equities, 17.2% to UK equities and 17.1% to European equities.

The US is not the traditional choice for UK investors when looking for income, yields are typically lower than other markets, partly due to valuations but also because this a market more orientated towards growth.

Consequently, the FTSE All Share yields 3.6% whereas the S&P 500 yields 1.7%. There is though no disputing the fact the US market encompasses lots of cash generative and quality names which can grow their dividends over time. Examples include tech giants Microsoft (MSFT:NASDAQ) and Apple (APPL:NASDAQ). Both tech giants are constituents of Bankers’ top 10 holdings.

‘We are trying to grow the income in real terms for the UK investor, something the current government is not doing in relation to wage growth,’ adds Crooke.

Over 10 years, the trust has achieved a share price total return of 143.2%, over five years 34.6% and over three years 26.5%. This has not fully kept pace with NAV (net asset value) growth and the shares currently trade at an 8.9% discount to NAV. Ongoing charges are very competitive at 0.5%.

It has also delivered 56 consecutive years of dividend increases. The trust’s yield is 2.3% and dividends are paid quarterly. Crooke admits that the trust fell ‘slightly behind last year’ but its hoping to ‘get back on track in 2024’.

Another overseas income seeker: what North American Income Trust looks for

The North American Income Trust (NAIT) has performed well over the last 12 months considering the difficult macroeconomic backdrop. Its share price has gained 12.4% over one year, outperforming its benchmark the Russell Value 1000 index which chalked up a return of 7.7%.

The trust offers a dividend yield of 3.9%. Senior portfolio manager Fran Radano says he adopts a defensive strategy however he maintains that he and his team are ‘not totally defensive in our outlook.’

Radano says: ‘The companies we have are sensible with their cash flow. They use any money they make to pay off debt, for example, US energy multinational Phillips 66 (PSX:NYSE), their dividend payment is modest at $1.05 per share.’

Radano says he uses a ‘bottom up’ approach when stock picking for the portfolio: ‘We generally focus on total return rather than simply high dividend yielding stocks in our portfolio. We are not a high turnover trust, but we will lean to how the [US] stock market turns.’

‘In terms of portfolio activity during the month we added to our holdings in industrial gases company Air Products & Chemicals (APD:NYSE), soft drinks maker Coca Cola (KO:NYSE), utility CMS Energy (CMS:NYSE) and insurer MetLife (MET:NYSE). We trimmed holdings in network equipment manufacturer Cisco Systems (CSCO:NASDAQ) and clothing company VF Corporation (VFC:NYSE).’

Radano does expect a ‘shallow recession’ in the US towards the second half of the year, with an additional ‘hawkish’ quarter point rise from the Fed in the coming weeks. However, he reassures: ‘US equity levels now appear to have priced in a strong probability of slowing economic growth, if not a recession.

‘Although there could be another sell-off in equity markets in the future, history shows that they have often hit a low point then begun to recover prior to GDP bottoming out. Indeed, we are now seeing some increasingly appealing valuation points for long-term investors like us.’

The trust trades on a discount of around 10% and its ongoing charges are 0.93%.

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