Investors seeking exposure to US value equities with a modern twist should take note: BlackRock American Income Trust (BRAI) is preparing to overhaul its investment strategy, leveraging artificial intelligence and big data in a first-of-its-kind approach among UK-listed investment trusts. This bold pivot promises lower costs, enhanced dividends, and a smarter way to tap into undervalued American companies.
BlackRock American Income Trust (BRAI) is poised to enter a transformative chapter. Following a period of underperformance relative to its US 1000 Value Index benchmark, the trust’s board has proposed a sweeping change: a transition from traditional active management to a systematic investment strategy powered by BlackRock’s Systematic Active Equity (SAE) team. This evolution combines advanced technology, machine learning and seasoned human insight to target consistent, risk-managed returns. The shift signals a pivotal moment not just for BRAI, but for the wider investment trust sector, where systematic strategies remain largely untapped.
BRAI will retain its core focus on US value equities—distinct from the growth-centric strategies that dominate the market—maintaining the US 1000 Value Index as its benchmark. However, under SAE’s management, the number of portfolio holdings is expected to expand from around 60 to between 150 and 250, enhancing diversification and resilience. The SAE team will construct portfolios from over 1,000 US stocks, ranked daily using alpha signals derived from a growing pool of data sources—now over 1,000 in number. Back-testing capabilities and proprietary AI models allow for real-time adjustments, with built-in controls on stock, sector, and country-level exposure to manage volatility and risk.
Importantly for income-focused investors, the trust will adopt an enhanced dividend policy, replacing the current fixed 2.0p quarterly payment with a dynamic model based on 1.5% of quarter-end NAV. This approach equates to an expected annual yield of 6.0% of NAV—materially higher than the average yield from US equities. This change aligns payouts more closely with portfolio performance, offering flexibility and potentially more attractive income during strong market periods.
Fee structures are also set to improve meaningfully. BRAI will shift from a flat 0.70% annual fee to a tiered model of 0.35% on assets up to £350 million and 0.30% thereafter. To further support shareholder value, BlackRock will waive fees for six months following the implementation of the new strategy and contribute towards transition costs. This makes the overhaul cost-neutral for continuing investors.
In a move to increase investor confidence and accountability, the board is offering exit opportunities. Shareholders may tender up to 20% of shares at a 2% discount to NAV in April 2025. Furthermore, a full exit option is guaranteed if the trust fails to outperform its benchmark by more than 50 basis points annually over a three-year rolling period or if NAV falls below £125 million.
The US market, which currently represents about two-thirds of global equity indices, has delivered robust gains in recent years, especially from a narrow band of mega-cap tech stocks. However, with signs of a broader leadership emerging and growing macroeconomic uncertainty—including inflationary pressures and trade policy shocks—value investing may be well-positioned for a comeback. Historically, value stocks have outperformed during inflationary periods, and the valuation gap between value and growth stocks remains wider than average. Against this backdrop, BRAI’s renewed commitment to value, now reinforced with advanced data analytics and systematic rigour, offers a timely and compelling proposition.
Performance-wise, BRAI’s recent returns have lagged its benchmark, with a FY24 NAV total return of +16.0% versus +23.2% for the reference index. Challenges included stock selection issues in consumer staples and healthcare, though there were notable contributions from holdings like Citigroup and General Motors. The trust’s 4.5% yield remains one of the highest among its peers, and its discount to NAV has started to narrow as investors anticipate the upcoming changes.
The proposed strategy is subject to shareholder approval at the Annual General Meeting on 16 April 2025. If passed, it will mark a milestone in systematic investing within the UK trust space and a reinvigoration of BRAI’s offer to investors.
BlackRock American Income Trust aims to deliver long-term capital growth and attractive income by investing primarily in a diversified portfolio of US value equities. Under the proposed strategy, it will become the first UK-listed investment trust to be managed using BlackRock’s Systematic Active Equity platform.
