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 Tony DeSpirito, Manager of the BlackRock North American Income Trust.
Hi, Tony.
Tony DeSpirito: Hi.
Wall: So we're going to have a little look at your fund and the opportunities that you're seeing within the North American equity sector. Firstly, I thought we'd talk about – we'll address the concerns that many people have about U.S. equities, which is that they are overvalued. And I know you have quite a strong sell discipline. I thought maybe we can start by you explaining what does it take for a stock to leave your portfolio?
DeSpirito: Sure. We're always asking ourselves every day, do we have the best portfolio we possibly can have? And so, the three things we look at are; one, valuation. Has the valuation reached a point where there is no more upside here. We really should be moving on to another stock in our backlog. We also focus very much on quality, and we look to see if there is any indication that the quality of the business has deteriorated either the competitive dynamic has changed or management has changed something like that.
Then finally, we always want that healthy competition for capital. So one of the things we focus on is having a backlog of ideas and that makes the sell process a lot easier and so it's kind of a like a best – the best defense is a good offense. That's the idea of the competition.
Wall: You've made some changes in the fund in order to strengthen those ideas. You've introduced some new people and you've introduced a quant screen having you to help generate those ideas. So is it very much the case of one end, but there is always another opportunity to come into the fund as well?
DeSpirito: Exactly. We have been investing in the team. We've added couple of people, so that we can go more in-depth on the research. Also we've added a screen at the front-end to really help make sure we're not missing anything. So if there is a stock out there that looks, smells and feels like a classic equity dividend stock, we're going to find it, we're going to research it but then we're going to make an investment decision based on the research and the fundamentals not on the screen.
Wall: So you are very much a bottom-up stock picker, which you've just explained the process there, but that's not to say that the macro doesn't have an impact?
DeSpirito: Sure.
Wall: So recently the Fed has been scared-off by rumblings in China. Obviously, on an economic level that has worried them. Do you think equity investors need to be worried as well?
DeSpirito: I think equity investors need to be cautious, but not worried. And so the way we think about it is, we've been in a slow growth environment for some time. We would expect this recovery to continue for a long time, but at a slow pace. But when you are in a slow – when you have slow underlying growth, it's sometimes tough to tell the difference between a slowdown and a recession and I think that's what investors are scratching their heads about right now is are we going into just a mid-cycle slowdown or a recession.
Certainly, emerging markets have grown in importance both in the global economy and even to the United States. That being said, the U.S. has never caught recession from outside the rest of the world, it's usually been self-generated.
So, I think it's kind of akin to the late Nineties where you have some factors that are slowing down the economy in the U.S., particularly on the industrial side. But when you look at the U.S. consumer, very strong both in terms of income because of number of people employed as well as the balance sheets – the U.S. consumer balance sheets in the best it's been certainly in 10 or 15 years maybe even longer when you think about low interest rates combined with low debt levels.
Wall: So lots of investment ideas and a supportive economic backdrop?
DeSpirito: Yes, yes.
Wall: Tony, thank you very much.
DeSpirito: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
