If you take a positive view of the US economy under President Trump, then the North American Income Trust is a useful place to be.
This is managed by Aberdeen Asset Management and is designed to provide an above-average dividend income and long-term capital growth, investing in mainly American S&P 500 companies and paying a quarterly dividend. The yield from the fund has tended to be above 3 per cent, but recent outperformance means it has fallen to about 2.9 per cent.
The fund concentrates on US stocks with a decent income, eschewing high-tech ones that do not pay dividends. It is overweight on banks such as BB&T, a North Carolina-based lender little-known here, and on Citigroup and Bank of America Merrill Lynch, which largely explains that recent outperformance, such shares having done well since the US election on the assumption that interest rates will move higher.
The inclusion of Pfizer in the portfolio may give rise to concern, given Mr Trump’s negative views on the pharmaceuticals industry, but the stock is a good yielder. Likewise, Dow Chemical is a stock that is out of favour with investors but a solid enough holding. Chevron may look an odd choice, but the shares are more reliable than any number of smaller and riskier exploration stocks.
Since June 2015 the fund has been managed by Aberdeen’s Philadelphia-based team. It is underweight on technology companies and healthcare, reflecting the fact that these are not particularly good sources of income, while almost 30 per cent of it is in those financial stocks.
The United States has been a difficult place to invest for active fund managers in recent months because it is hard to find value in these markets, given their strong gains. NAIT is focused on income stocks and any investor who wants an exposure to US equities should start here as a first stop.
That yield may not look too attractive to UK investors, but it is rather better than the market offers as a whole, on the present share price, off 12p at £12.27. The discount to net asset value, about 8 per cent, suggests this is a decent entry point. North American investment trusts do not look especially cheap, but NAIT is about as good as it gets.
My advice Buy
Why The US investment trust sector does not look especially cheap, but for investors seeking exposure there NAIT is well placed
Essentra
Investors in Essentra, the former Filtrona cigarette filter business now diversified into packaging and other areas, are being asked to take an awful lot on trust. Paul Forman, the new chief executive, has just served up the company’s fourth profit warning, again centring on the health and personal care packaging business bought at the start of 2015.
Mr Forman is carrying out a strategic review of the company’s operations, but does not expect to produce any update until the first-half figures are announced at the end of July. Essentra is blaming “continuing operational issues” at the packaging business for a further decline in revenues and profits. Operating profits will be at the bottom end of previous guidance of £137 million to £142 million, or possibly worse.
Essentra is on track to complete the sale of its Porous Technologies business shortly, which will bring in £185 million to £190 million and cut debt. The shares, approaching £9 last spring, fell another 9p to 433¾p. The dividend looks safe enough, which suggests a yield of 4.8 per cent, but there seems to be no compelling reason to buy until the results of that strategic review are available.
My advice Avoid
Why There may be more bad news to come
SThree
The update the week before last from Hays, the recruitment specialist, made it clear enough that while continental markets were performing well, post-referendum uncertainty meant that employers in the UK were not keen to take on new staff. SThree has been building up its contract side, which is more profitable than full-time employment, while, with three quarters of fee income coming from outside Britain, there is an inevitable currency boost from the strength of the euro and the dollar. The UK, though, remains depressed, an 8 per cent fall in fee income reflecting dismal conditions in the banking sector, which suffered a 19 per cent fall, in energy and in the public sector.
There were also a few “management issues” in the United States, reflecting the need to build up the IT business there, which meant a shift in headcount away from pharmaceuticals. Pre-tax profits came in flat at £40.8 million, then, for the year to the end of November, reflecting those difficult conditions in America and Britain but 13 per cent growth in continental Europe.
Like the other recruiters, SThree is a strong generator of cash and ended the year with £10 million in the bank. Off 11¼p at 310¾p, the shares have come up from about 230p on October. They sell, therefore, on about 14 times earnings for the year to the end of November and yield about 4.5 per cent. This does not suggest they are overly expensive, but, given the uncertainties in the UK, this does not seem to be a good time to be buying recruitment stocks.
My advice Avoid
Why Continuing weakness in the British market
And finally . . .
One has to trust that the present crop of profit warnings is not a sign of what is ahead for corporate UK in 2017. Lamprell was one of yesterday’s clutch, the shares off 7 per cent after a trading update suggested that revenues for 2017 would be at the bottom end of the $400 million to $500 million forecast range. The company is doing what it can to rein in costs, but the oil price recovery is taking a long time to feed through to those companies that provide services to the oil and gas producers.
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