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Going back to basics as politics takes centre stage

February 2020

Fran Radano, Senior Investment Manager, The North American Income Trust plc

  • In a year of politics-driven markets, the investment focus remains on prudently managed, quality companies.
  • Healthcare will be a US election talking point, but the outlook is positive and companies in the sector represent good value.
  • 'Black swan' events add an air of unpredictability to markets in 2020, with clouds hovering over an improving global economy.

The relationship between political developments and stock market performance can be a surprisingly tenuous one. But there’s no getting away from the political shadows that currently loom over both the US and the wider global economy.

While political uncertainty has been a theme of recent years, the early weeks of 2020 offered a reminder that events can develop very quickly. No one was talking about Coronavirus at the turn of the year, but it became a talking point very quickly, referred to as a ‘black swan’ event, arriving without warning and with far-reaching consequences.

This unfolded against the backdrop of an improving global economy. A modest recovery partly reflects Central Bank policies, but it’s also more broad-based this time, including in Europe. China was stabilising before Coronavirus, and inflation is still very benign.

In the US the attention moved quickly onto the elections once President Trump’s impeachment hearings ended in his acquittal. One sector usually worth watching in an election year is healthcare, as it’s mostly non-partisan, the pricing backdrop is fairly opaque and companies know what price lines not to cross. The healthcare environment in general is better than the headline rhetoric suggests. While there are some price controls and margin constraints, they are offset by the trend of demographically-driven demand.

There is value in healthcare and here at the North American Income Trust, we own a fairly diversified group of holdings in the sector, including a medical device company, pharmaceuticals and a health insurer.

Nothing is guaranteed in election year, but we do know that the political card will be played as it is every four years. In US domestic policy terms that may well mean payroll tax cuts in the middle of the year for middle income earners, and perhaps an increase in earned income tax credits to target lower income taxpayers.

The ongoing US-China trade negotiations remain unpredictable, with the bigger structural issues yet to be resolved despite some areas of agreement. Many of the tariffs already imposed are not planned to be rolled back, leaving a lot of tariff dollars on the negotiating table that can be used as leverage in the next phase. Intellectual property and technology transfer are still key issues, and if President Trump gets better safeguards on these points he should be more disposed to further negotiate.

In a year of politics-driven markets, the focus is very much on quality. The North American Income Trust usually holds around 40 stocks, with the top 20 accounting for around 60% of the portfolio. The current portfolio concentration are a group of cash generative companies we believe to be fair values, possess good fundamentals and should have fewer perceived tail risks.

We aim to protect the downside by focusing on companies that are conservatively managed with an emphasis on understanding the risks inherent in their industry, as well as prioritizing the need to continually invest back into the business. These characteristics are exemplified by some of the biggest holdings in the portfolio, such as Coca Cola, CitiGroup, Lockheed Martin and Philip Morris.

Another holding is Gaming and Leisure Properties, a real estate investment trust that specialises in local casino properties and which provides a dividend of 6%.

In the banking sector we have become more focused and have continued to build a position in Citigroup, which has streamlined its operations by focusing on areas where they have a competitive advantage, divesting lower return segments and broadly reducing the risk profile of the company as a whole.

Overall, it’s about going back to basics and believing in the building block-type stocks that we know well.

Important Information

Risk factors you should consider prior to investing:

  • The value of investments and the income from them can fall and investors may get back less than the amount invested.
  • Past performance is not a guide to future results.
  • Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
  • The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
  • The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
  • The Company may charge expenses to capital which may erode the capital value of the investment.
  • Derivatives may be used, subject to restrictions set out for the Company, in order to manage risk and generate income. The market in derivatives can be volatile and there is a higher than average risk of loss.
  • Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
  • There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
  • As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
  • Certain trusts may seek to invest in higher yielding securities such as bonds, which are subject to credit risk, market price risk and interest rate risk. Unlike income from a single bond, the level of income from an investment trust is not fixed and may fluctuate.
  • Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.


Other important information:
Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.

Investors should review the relevant Key Information Document (KID) prior to making an investment decision. These can be obtained free of charge from or by writing to SL Capital Partners LLP, 1 George Street, Edinburgh, Scotland, United Kingdom, EH2 2LL.

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Risk warning
Risk warning
The value of investments and the income from them can go down as well as up and you may get back less than the amount invested. Please refer to the relevant Key Information Document (KID) prior to making an investment decision. Please be aware of scams that can affect investors.