Below, we highlight the important elements of BRSA’s investment story:
#1 BRSA had a change in strategy in 2021 to incorporate ESG objectives.
BRSA offers exposure to the world’s largest stock market, with the US making up around 70% of global indices. The trust’s emphasis on quality and value sets it apart from growth-oriented funds. BRSA was formerly known as BlackRock North American Income Trust (ticker: BRNA). On 30 July 2021, following shareholder approval, the trust’s investment mandate was changed to incorporate explicit ESG objectives, as BRSA’s board is mindful of the increased demand for investment products that place a sustainable investment philosophy at their core. The focus on reasonably valued, dividend-paying stocks was maintained, but the portfolio was changed to a multi-cap rather than a large-cap fund, while the number of holdings was reduced from 80–120 to 30–60. Also, the ability to write covered call options to enhance the level of income was removed as this strategy was deemed to hamper the fund’s capital growth potential.
#2 The trust’s managers employ a three-step process to stock selection.
There are three main elements to BRSA’s investment process:
Idea generation – the managers aim to identify the best ESG and alpha opportunities from an investment universe primarily made up of North American large- and medium-cap equities, although up to 25% of the portfolio can be invested in liquid non-North American companies. ESG exclusion screens are used to narrow the investment universe.
Fundamental research – this involves assessing the materiality of a firm’s ESG and sustainability factors and evaluating its important earnings drivers, along with engaging with company managements on business and ESG issues.
Portfolio construction – the fund is diversified by sector, industry and style factors. There are clear buy and sell disciplines for both fundamental and ESG considerations.
Compared with the reference index, BRSA has notable overweight exposures to technology and healthcare with underweight positions in industrials and real estate.
#3 ESG is deeply embedded into the investment process.
Portfolio companies are classified either as: ESG leaders, which are best-in-class businesses that effectively manage environmental, social and governance factors to benefit all stakeholders (these firms make up the majority of the portfolio); ESG improvers, which are companies showing demonstrable progress on their ESG journey and where active engagement may lead to improving ESG practices and more sustainable outcomes; or ‘sustainability enablers’, which are firms advancing the transition to sustainable solutions, such as greater energy efficiency and a lower carbon footprint.
Outright exclusions from the fund include businesses manufacturing controversial weapons or civilian firearms, fossil fuel miners (thermal coal and tar sands) and tobacco companies. BRSA’s resulting portfolio has premium ESG scores in all three of the subsectors (environmental, social and governance) and lower carbon emissions intensity than the reference index, as measured by MSCI, which is a leading external ratings agency.
#4 The trust offers an attractive dividend yield and steady annual payments.
US funds are typically focused on capital growth rather than income. However, BRSA also offers an attractive dividend yield that is consistently above those of the US and world markets. The trust’s annual dividend of 8.0p per share (four payments of 2.0p per share) has been held steady for the last six financial years; the board expects this trend to continue, by supplementing income with distributable reserves when required.
#5 BRSA’s board has resumed share repurchases.
Renewed annually, there is the authority to repurchase up to 14.99% and allot up to 10% of BRSA’s share capital. There had been no share buybacks since November 2020 and no issuance since April 2021. However, considering the prevailing discount to NAV, on 20 October 2023, the board restarted buying back shares to be held in treasury, and has continued on a regular basis.
