Ian Cowie: the US trust I’m backing amid AI turmoil

Amid rising anxiety about American shares and artificial intelligence (AI) in general, with specific worries about NVIDIA Corp (NASDAQ:NVDA) in particular, I have sold one investment trust focussed on that continent and bought another.

Lurid chatter about a Chinese spy targeting one of America’s biggest tech companies adds to the febrile atmosphere ahead of presidents Donald Trump and Xi Jinping meeting at the Asia-Pacific Economic Cooperation (APEC) summit in Shenzhen, China, next Wednesday (18 November).

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Coming down from the clouds of geopolitics and macroeconomics, regular readers might not be surprised to learn that a major attraction of my new investment trust is 5.5% dividend income.

Without further ado, step forward BlackRock American Income Trust Ord (LSE:BRAI), my new exposure to the world’s biggest economy.

The first thing to say about its remarkable income distributions is that they are financed by an enhanced dividend policy.

What that means in plain English is that some capital growth achieved by the underlying assets is used to top up the income paid out.

These distributions are intended to be equal to 1.5% of the fund’s net asset value (NAV) at close of business on the last working day of January, April, July and October respectively; adding up to 6% of NAV annually.

Purists and traditionalists don’t like enhanced dividends because, very properly, they point out the risk that drawing too high an income can reduce total returns.

Put another way, taking out too much today might mean eating tomorrow’s seed corn.

Against all that, BlackRock American Income has delivered total returns over the last decade, five-years and one-year periods of 199%, 81% and 36% respectively, though it only introduced the enhanced dividend policy fairly recently.

That puts this fund at the top of its sector over the last year and five-year periods, while it ranks third over the decade.

All things considered, it should be no surprise that BlackRock American Income - which goes ex-dividend today (12 November), temporarily trading without entitlement to its next distribution - is priced at a modest 2% premium to NAV.

A high-quality portfolio

Another reason to be cheerful is the high quality of this fund’s underlying portfolio. 

The online retailer Amazon.com Inc (NASDAQ:AMZN) and the iPhone-maker Apple Inc (NASDAQ:AAPL) are its biggest assets, each accounting for 6% of the total, while the software giant Microsoft Corp (NASDAQ:MSFT) ranks third with 5% of NAV.

Other top 10 assets include the investment guru Warren Buffett’s holding company, Berkshire Hathaway Inc Class B (NYSE:BRK.B); the oil and gas giant, ExxonMobil Holdings Corp (NYSE:XOM) and the investment bank, The Goldman Sachs Group Inc (NYSE:GS). 

None of the above could be accused of over-distributing dividends.

All things considered, I am happy to pay ongoing charges of 0.73% for professionally-managed exposure to the potential for capital growth plus high and rising dividends offered by this portfolio.

Perhaps the biggest problem detracting from its appeal elsewhere is that BlackRock American Income has total assets of ‘only’ £215 million.

That’s too small for many wealth managers to bother with but, needless to say, no problem for your humble correspondent.

This should remind us that individual investors can sometimes enjoy certain advantages over our institutional rivals.

The trust I'm selling

Less happily, because I only have a fairly fixed sum to invest, in order to buy BlackRock American Income I had to sell my shares in Canadian General Investments Ord GBP (LSE:CGI).

The latter also has an impressive underlying portfolio but its gross dividend yield of 2.5% is subject to withholding taxes north of the border.

Worse still, Canadian dividends gain no relief from anything similar to the USA’s W-8BEN form, which reduces deductions from dividends paid to British investors in American shares.

While we shouldn’t let the tax tail wag the investment dog, meagre income did little to alleviate concerns about a recent reduction in Canadian General Investments’ returns of 274%, 38% and 12% over the same periods mentioned earlier.

Looking forward, it remains to be seen how an admission of adultery by Jensen Huang, chief executive of the microchip-maker Nvidia, allegedly with a Chinese spy, and his resignation will affect its shares or those of other AI stocks. Similarly, the world awaits the outcome of next week’s meeting between presidents Trump and Jinping at the APEC summit in Shenzhen.

Similarly, the world awaits the outcome of next week’s meeting between presidents Trump and Jinping at the APEC summit in Shenzhen.

Will it end in AIpocalypse Now or merely the embarrassment of a naughty boss caught out in an invidious position? We will just have to wait and Xi.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple, BlackRock American Income, ExxonMobil and Microsoft as part of a globally-diversified portfolio of investment trusts and other shares. For more information, see iancowie.co.uk