BlackRock’s Ryan overhauls Income Strategies Trust

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Last year was a big year of change for the BlackRock Income Strategies Trust. The £440m trust started the year with a name and mandate change, meaning manager Adam Ryan has made large shifts in the portfolio in the past 12 months, since taking on the trust in February 2015.

Previously called the British Assets Trust, the fund was underperforming, leading the board to hand notice to incumbent manager F&C Investments and pass the trust to BlackRock. As part of the move the trust was renamed and the global equity investment strategy refocused to be more multi-asset.

“The trust had somewhat lost its way. In investor demand it has seen little in shareholder register change, it had discounts for a long period, and the board was looking at ways and means to make the trust more relevant,” says Ryan.

The shift has resulted in Ryan cutting the previously 80 per cent UK equity allocation down to 40 per cent, in favour of investing in equity markets more globally and diversifying asset classes.

In particular, Ryan has invested in Japan and European equity markets, with around 10 per cent of the fund in European equities and around 4 per cent in Japan. The fund also has global exposures, which include European and Japanese allocations too.

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Ryan sees Europe as a good valuation play, with it being cheaper than the US in particular. He also expects the European Central Bank to do more on its monetary policy in the coming months, despite disappointing markets last year by not expanding its QE programme.

“You have got the ECB that has a mandate around inflation and continues to undershoot the market, and with oil prices down further there is still scope for the ECB to do more on the monetary policy side. Most importantly for Europe, the economic momentum looks pretty good,” he says.

Another large focus for Ryan in the shift of the trust assets is to create a 15 per cent allocation to alternatives within the fund, in part to increase diversification, but also to be an alternative source of income.

“The emphasis for us when looking at alternatives will certainly be income generation. The renewable energy sector, for example, has a lot of income streams and there is an inflation protection component to it,” says Ryan.

Currently the fund has around 10 per cent in alternatives, but some of these are liquid alternatives, for example an allocation to green energy through listed vehicles. Ryan is waiting for the shareholder base to be more stable before introducing more illiquid alternatives, such as venture capital trusts and direct lending.

While diversification is the key for Ryan in the trust, he is not allocating much to emerging markets, saying that the “challenges there are numerous”.

“There is a macro recession, high inflation, China growth is sub 5 per cent and there is ongoing pressure on the currency. Policy mistakes are happening almost on a weekly basis, and the only bright spot is India. We have some exposure to Indian bonds but we think with Indian equities the good news is priced in,” he says.

Another change for the trust came at the end of last year, when it moved to the Association of Investment Companies’ new Flexible sector, which mimics the Investment Association Flexible sector, and contains trust that are outcome orientated, says Mark Johnson, a managing director of closed end funds at BlackRock.

A focus for Ryan in 2016 is to stabilise the discount further in order to hopefully expand the size of the fund. The trust previously traded at around an 8 per cent discount to net asset value, says Ryan, while last year it traded at a small premium.

“Long term we would love to grow the trust, but for us to be able to do that we need to make sure there is trading volume to give investors comfort they can get in and out,” he says. “It would be lovely to have the trust as one of the larger ones in the sector.”