Investment trusts have a history of more than 150 years and over that time, have constantly reinvented themselves to meet investors’ needs. The first ever trust, F&C (FCIT), was launched back in 1868 and in the intervening 157 years, the sector has survived wars, recessions and myriad market crashes. In a clear demonstration of the sector’s ability to move with the times, BlackRock American Income’s (BRAI) board recently adopted a systematic active equity investment process that combines big data, artificial intelligence, and human expertise.

The goal of this approach is to enhance returns and pep up the performance of a trust which lags its AIC North America sector peers on a one-year share price total return basis and is the second worst performer on a five-year view.

With the introduction of the new strategy, which has helped to narrow the NAV (net asset value) discount since March to 4.9% at the time of writing, the trust has changed its fee structure so that ongoing charges are expected to fall from 1.06% to a much more competitive 0.8%.

Travis Cooke and Muzo Kayacan, the new managers of a £113.5 million cap trust targeting long-term capital growth and an attractive level of income, seek to deliver consistent outperformance of the Russell 1000 Value Index on an annual basis and in a risk-controlled manner at that. To achieve this, they aim to build a portfolio with characteristics closely aligned to the benchmark, with ‘alpha’ being generated through a large number of small active positions.

Cooke and Kayacan are supported by BlackRock’s Systematic Active Equity team, which as Kepler analyst Alan Ray points out, includes ‘more than 90 investment professionals who benefit from a multi-million-dollar annual data budget as well as significant technological resources’.

INNOVATIVE & DIFFERENTIATED

Talking Shares through the rationale behind the changes approved by shareholders in April, the trust’s chair David Barron says: ‘The challenge for the board was we’d gone through a period of difficult performance. And we wanted to offer active US equity management at a lower, more competitive fee through a strategy that we thought gave us good potential to get to greater scale through being innovative and differentiated.’

Barron continues: ‘But we wanted to keep the exposure to the value part of the US market, and we also wanted to keep something that used the flexibility, the integrity of the investment trust structure, namely the ability to use smooth income and pay regular dividends.’

In the run up to the trust’s continuation vote, BlackRock put forward a proposal to move to its systematic strategy which had great appeal to Barron and the rest of the board. ‘This is a very well-established approach in many investment markets, but was not one that had been particularly offered to UK investors in the retail and wholesale market,’ explains Barron.

‘But it is something that BlackRock has been doing for a long time and does very well. We got through our continuation vote, the portfolio changes were put through efficiently, and since April, Muzo and the team have been running our portfolio on the new approach. We hope it is something that will catch on in the broader UK market. The board’s view is this is a very modern active investment strategy.’

Though BlackRock American Income’s strategy and management team have changed, the trust remains focused on value and has retained its income mandate. In fact, it has adopted a new enhanced dividend policy, tied to quarterly NAV, which offers the potential for increased income so long as NAV grows.

Cooke and Kayacan from BlackRock’s Systematic Active Equity team have taken over the management of the fund, replacing Tony DeSpirito, David Zhao, and Lisa Yang from BlackRock’s Fundamental Active Equity team.

Kayacan informs Shares that this is not a brand new approach, since the systematic active equity team at BlackRock have been around for 40 years. ‘But I think what’s new is that are we are bringing this to investment trusts. Why is it exciting? Well more and more, people recognise that technology makes humans more productive, and technology is amazing at filtering things and narrowing things down,’ enthuses the portfolio manager.

‘Systematic investing is not brand new. Even artificial intelligence is not brand new. Investing always starts off with gathering information, whether you are flying somewhere to look at a mine, talking to company management, reading some broker research or the news in the morning, you are gathering information. And now more and more systematic investors can do that systematically.’

Kayacan and his team use computational techniques, such as natural language processing and machine learning, that enable them to process vast amounts of data on a daily basis. Among other inputs, this includes data from news, broker research, social media activity and consumer transactions related to more than 1,000 US companies, a task that would be nigh-on impossible for humans to carry out at such scale.

The AI-driven model then generates insights, suggesting potentially actionable investment ideas for the team, which are referred to as signals. But while technology plays a critical role in the investment process, human input remains important and ultimately, the portfolio managers select which stocks go into the portfolio.

DIGITAL TRACES OF HUMAN BEHAVIOUR

Kayacan says the approach also enables the managers to examine the ‘digital traces of human behaviour.

‘People interact with brands on social media, people buy stuff online, companies put details of new products or new jobs on their website, so there’s a vast amount of data that enables you to “nowcast” company fundamentals,’ says the BlackRock manager.

He continues: ‘If a company has just posted a load of jobs on its website, it is probably gearing up to sell more stuff, if it has pulled a load of jobs off its site, the company is probably seeing a slowdown in its business. If a brand sees strong year-on-year growth in interactions on Instagram around its products, we tend to find that is correlated with traffic to that company’s website and ultimately the revenue. So you’ve also got different data sources that let you nowcast fundamentals and you can do this across hundreds or even thousands of companies.’

He continues: ‘More and more what we do is use technology or AI tools to gather all of the important information on companies, synthesise it together and then just predict which stocks will outperform or underperform the market. As a portfolio manager, it is like being an architect, you design the system that picks the stocks, and you do that in a very rigorous way so that you have a very high degree of confidence.’

What does Kayacan see as the team’s edge in a super-competitive market, wonders Shares aloud? ‘It is probably our ability to be a bit more dynamic. Our holding period is typically six to 12 months. And we are trying to get ahead of the market consensus over like the next two to four quarters. For a human investor, it is hard to keep incorporating new information. But a model that reads everything, captures shorter term sentiment as well as long term fundamentals, that dynamic approach means that when the market keeps pivoting, we’ve got a better ability to capture that changing investment opportunity set.’

Kepler’s Alan Ray stresses that risk control is also reflected ‘in the number of stocks Travis and Muzo aim to hold - between 150 and 250 names.

‘The rationale for holding a large number of stocks is to diversify risk, ensuring that no single position has the potential to severely impact the portfolio’s overall performance.’ Albeit backward-looking, the trust’s top 10 holdings as at 30 June 2025 included Jamie Dimon-led JPMorgan Chase (JPM:NYSE), Google-to-YouTube owner Alphabet (GOOG:NASDAQ) and Walmart (WMT:NYSE), the world’s largest retailer. Other top positions included retailer-to-cloud computing titan Amazon (AMZN:NASDAQ), Bank of America (BAC:NYSE) and Pfizer (PFE:NYSE).

THE KEPLER VIEW 

Kepler’s Alan Ray believes that BlackRock American Income’s focus on the value factor is a key differentiator, and one that ‘could complement a more typical US equity growth strategy by offering a different performance profile. Historically, US value equities have tended to outperform their growth counterparts during challenging market conditions – such as in 2022, when inflation and interest rates surged. Value stocks’ earnings tend to be nearer term and less speculative than those of growth stocks, which can make them more resilient to shifts in interest rates or macroeconomic uncertainties. In addition, value stocks often pay dividends, while many growth stocks do not, providing a cushion during periods of volatility.’

‹ Previous2025-09-04Next ›