22 The North American Income Trust plc
Portfolio activity
The Company’s investments remained consistent with our
high-quality, cash-generative stock selection process,
however, market volatility created opportunities to add
quality companies into the portfolio at attractive prices.
During the review period, we initiated an equity position in
Hannon Armstrong Sustainable Infrastructure Capital, a
provider of financing solutions to companies in the
renewable energy space. We believe that the company
will benefit from an acceleration in climate-change-
related projects, by leveraging its expertise and
relationships within the industry. This will result in better
than anticipated balance sheet and earnings growth. The
management of Broadcom, a supplier of semiconductor
and infrastructure software solutions, has a strong history
of creating value. We are comfortable with the company’s
approach to mergers and acquisitions given a proven
history of high returns on equity (“ROE”), best-in-class
margins, and free cash flow (“FCF”)/dividend growth.
MetLife, a provider of insurance, employee benefits, and
other financial services, currently has a collection of
businesses (International Life, Group Insurance, and
Institutional) that generate higher growth and superior
returns relative to most US peers following the divestiture
of lower-value segments and the spin-off of
Brighthouse Financial.
Shares in Baker Hughes, one of the world’s largest
providers of equipment and services to the energy sector,
were purchased. The company is in a unique position
within the energy complex because beyond its exposure
to traditional oil field services markets, it has a near-
monopolistic position within liquefied natural gas
equipment, and a diverse set of solutions that will help to
accelerate the energy transition. This combination of an
attractive fundamental backdrop, healthy financial profile,
and strong dividend yield creates an opportunity which we
believe the market isn’t fully appreciating.
VF Corp. is a global footwear and apparel company
focused on outdoor and lifestyle activities with popular
brands, including The North Face, Vans, Timberland,
Dickies and Supreme. The management team has
repositioned and reshaped the company’s portfolio of
brands which in our view will yield faster and more
profitable growth coming out of the global pandemic. We
are confident in management’s ability to execute on this
improving growth strategy, while the market appears
more sceptical.
CI Financial is a wealth management firm that has an
investment management arm and a fledgling Registered
Investment Advisor (RIA) business. The company has
experienced continued organic and inorganic growth as it
expands into US wealth management, and the launch of
new products in asset management is driving revenue
growth and improved profitability. It is believed that the
market is not currently pricing in this future growth and
improved mix to the RIA business, and further multiple
expansion is warranted as the quality of the earnings
stream improves.
A position in OneMain Financial, which provides credit to
near-prime consumers, was initiated. Apollo Group (which
the Company does not hold) took a majority control
position within OneMain Financial and helped to improve
the company’s balance sheet, cost of funding, and risk
profile by focusing more on secured lending and
optimised pricing. In our view, these changes have
resulted in a much higher-quality company with scope for
both earnings growth and sizable return of capital in the
coming years via dividends (a yield in excess of 5%),
special dividends, and share buybacks.
Other initiated holdings during the review period included
Emerson Electric (EMR), a provider of engineering services
for industrial, commercial, and consumer markets. We
believe that its leading position in automation for certain
end markets such as energy and chemicals should benefit
from the economic recovery and from longer-term
tailwinds related to clean energy. Furthermore, it is
believed that EMR’s more consumer-oriented businesses
are positioned well within the strong residential and
housing environment, with cost reductions supporting
margins over the medium term.
Analog Devices (ADI) is an analog semiconductor vendor
that sells into a wide range of global end-markets, most
notably industrial, automotive and communications. The
company has gained significant scale through organic
growth and acquisitions and is now the second-largest
analog semiconductor supplier globally. The ADI
management team has a strong execution track record
and company financials have improved significantly over
time. ADI generates high margins and strong free cash
flow, and a 100% return policy supports ongoing dividend
growth making it an attractive growth and income story, in
our view.
Investment Mana
er’s Review
Continued