Emma Wall: Hello and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Adam Ryan, Manager of the BlackRock Income Strategies Trust (BIST).
Hello Adam.
Adam Ryan: Good afternoon.
Wall: So, this is a new trust. It's a new Trust with a new name, although it used to be British Assets Trust and rather than just a name change the reason why I'm calling it a new Trust is because pretty much all holdings have changed as well. What's happened?
Ryan: It's interesting, isn't it, because it's a new Trust and yet it's been around for over a 100 years. And I think it's fair to say that the Board was thinking about their relevance as a Trust going back 12 to 18 months. They had actually done some work about its relevance in the marketplace, speaking to their shareholders, seeing why the shareholders owned the trust in the first place. So, I think it's fair to say there was already a seed planted that something different should happen.
And then along came the pension reforms and this idea that we need to be creating solutions for people who are entering retirement, need a higher level of yield but not willing to take full equity market risk which is clearly what British Assets Trust had being by and large almost fully invested in equities. So, I think those seeds were sown. The political landscape changed as it came into being in terms of not requiring to take a full annuity.
So, I think a number of these things aligned where the Board thought, hang on a minute, we've got a wind of opportunity to suddenly make British Assets Trust as was more relevant to today's savings environment and the pension's environment, hence the transition to BlackRock Income Strategies Trust and a move away from just purely equities to be much more multi-asset focused.
We can embrace the full toolkit we, as investors, have at our disposal now with the aim of really still seeking that income which is what existing shareholders wanted, but to try and reduce the level of risk.
And by doing that hopefully attract new shareholders who, as I say, are in that period of their retirement cycle where they don't want to take full equity risk, but they still want to have some capital growth, they need that income and therefore, that multi-asset approach, that reduction of risk hopefully makes sense to them.
Wall: It's a big change to go from domestic equities to basically the world is your oyster in terms of all assets, all geographies. In a way it's easier to run a multi-asset fund because you have more choice in order to deliver returns, but in many ways it's much harder because the pool that you are fishing in is considerably larger. So, where are you finding the best opportunities?
Ryan: Yes, it's interesting and it's always a temptation when you have got so much in front of you to be very magpie like and just focus on the latest hot topic. One of my colleagues has got this great phrase of the risk of being an investment tourist where you just go to the latest hot destination and they are plenty of those in today's investment environment.
So, you are right that we have to be very disciplined and the research team that we have got, their focus is on a disciplined and rigorous approach to various parts of the assets market. It's making sure we are evaluating these opportunities consistently through time.
So, in terms of where we have restructured, we have reduced the focus on the U.K. I think that shouldn't be interpreted as us being incredibly negative around the U.K. I think the economic outlook looks pretty good, having a Conservative majority Government means that there will still be a focus on corporates playing a big role in the U.K. economy. So, I think all of that is good, but in order to free up money within the Trust to invest elsewhere we have reduced the U.K. equity weighting.
Some of that money has gone into places like Japan. I think Japan is a bit at risk of being classified as an investment tourist destination, but there are some good things going on there. Abe's reforms are beginning to bite. We are beginning to see wages increase. Companies are more focused on shareholder value. They are increasing dividend payouts, for example. So, I think some good things going on in, Japan notwithstanding is going well.
Europe I think is interesting. It had done well. So, when we took over the Trust we put some money into Europe, both equities and bond markets, but we have got more to go there. We've seen European equities pull back literally in the last few weeks. Bond yields have risen quite substantially. So, I think Europe maybe a destination we put more money into because I think growth is picking up, albeit from very levels and the ECB's quantitative easing program I still think has got a long way to run and I really do think caps out bond yields, particularly for the likes of Italy and Spain.
So, those are the sort of things we are looking at, quite different from the existing Trust. But I think people have said isn't this too complicated for individual investors to own? I'd argue to your point actually in some ways conceptually it's easier.
You think about the landscape today from a growth perspective, the opportunities and that's where you go. You are not forced simply to own U.K. equities because that's been your mandate. So, I would argue it's almost more intuitive to do it this way than just focus on a single stock market.
Wall: Adam, thank you very much.
Ryan: You’re welcome.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
