Bob Shearer and Kathleen Anderson, who together run in the region of $36bn, including the $22bn BlackRock Equity Dividend Fund and the investment manager’s £95m North American Income Trust, expect lower-capitalised companies to take the strain when monetary policy no longer supports markets.
They explained: “As the potential for rate increases becomes a reality, we believe significant risk can be found in the lower-capitalised, fundamentally weaker, segment of the US equity market where the structural decline in business may have been masked by advances in stock prices.
“While historically prime market conditions have supported this subdivision of the market, we simply believe that it cannot last forever.”
Hunt for income
Shearer and Anderson have positioned their trust to benefit from a shift in market leadership and will continue to hunt out companies that offer potential for rising income and longer term returns.
Their trust is overweight consumer staples, materials and industrials because these sectors should benefit from the rebound in the housing market, as well as strengthening global growth and persistent – albeit slower – industrialisation in the developing world.
Returns
While stock selection in the industrial space and materials held the trust back during September, with its net asset value (NAV) declining by 2.4%, the team’s decision to be underweight healthcare paid off.
Updating investors Shearer and Anderson said they had increased their holdings of communications giant Motorola Solutions and sold out of smaller positions in aerospace firm Rockwell Collins and utility holding company PPL Corporation, adding that the portfolio was “insulated but ready to participate” should markets rise through the end of the year, and escape the volatility that they fear.
Year to date Shearer and Anderson have grown the trust’s NAV by 15.6%, versus a 25.4% rise in its Morningstar Investment Trust North American benchmark. Shares in the trust, which launches last October, remain popular with investors, however, and currently trade at a 2.9% premium.
