Q&A: The North American Income Trust – year in review

In this article, we ask NAIT’s managers Jeremiah Buckley and Fran Radano about the implications of a volatile year in the US and the outlook for 2025…

How have US stocks fared in 2024?

The US led the world’s markets over the year. This was driven by strong earnings and resilient economic growth. Perhaps predictably, technology and communication services stocks gained most in earnings and share price terms. However, there were also significant gains seen in “cyclical” sectors – those expected to be more impacted by the economic cycle. Both financial and industrial stocks saw price and earnings rises in the year.

However, it’s important to note that the S&P 500 share index has risen more in 2024 than the earnings of the companies within it have grown. As such, selectivity is important in sectors, and within sectors, where valuations have expanded. A company’s ability to deliver growth that justifies its valuation may be a key determinate of performance in 2025.

How is the US economy positioned for 2025?

The prospect of rising consumer spending and improving labour productivity are both positive for US markets. Consumers have seen real wage growth, higher interest earned on cash and stock market gains, which could mean rising spending lies ahead. At the same time, we believe that mass layoffs are unlikely as companies are reporting healthy profit margins. There is also room for the Federal Reserve to support the economy more if needed.

A particularly encouraging development is the recent resurgence in labour productivity. This enables companies to increase wages while maintaining profit margins. This means that labour productivity is supportive of consumer spending, which is a crucial support for the overall economy.

Where have you found opportunities for The North American Income Trust?

We believe that AI remains a compelling theme in the US. There has been some volatility in tech stocks, but the move towards improving labour productivity is just one of the supportive factors for this segment. This is a cross-sector transition, seen in industries as diverse as healthcare, e-commerce, finance and energy.

In order to gain exposure to the AI trade, we have initiated positions in Dell, Microsoft and Google and increased our position in Broadcom, among others.

We also have a positive view on healthcare stocks. In this category, we lean towards biotech and medical device companies as the innovation in these sectors could lead to significant growth through new treatments.

Elsewhere, we have allocated towards consumer services and financial services, which would both benefit from a rise in consumer activity. As a trust that is explicitly looking to generate an attractive dividend yield, utilities companies have also caught our eye this year. Widespread electrification should drive higher earnings growth into the future.

Generally speaking, we continue to look for a combination of companies offering attractive dividend yields and those positioned for earnings and dividend growth. By seeking out innovation, we aim to capture future dividends, even as we benefit from our existing yielders.

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Glossary

Cyclical stocks

Companies that sell discretionary consumer items (such as cars), or industries highly sensitive to changes in the economy (eg. mining).

Dividend

A variable discretionary payment made by a company to its shareholders.

Earnings per share (EPS)

EPS is the bottom-line measure of a company’s profitability, defined as net income (profit after tax) divided by the number of outstanding shares.

Economic cycle

The fluctuation of the economy between expansion (growth) and contraction (recession), commonly measured in terms of gross domestic product (GDP). It is influenced by many factors, including household, government and business spending, trade, technology and central bank policy. The economic cycle consists of four recognised stages. ‘Early cycle’ is when the economy transitions from recession to recovery; ‘mid-cycle’ is the subsequent period of positive (but more moderate) growth. In the ‘late cycle’, growth slows as the economy reaches its full potential, wages start to rise and inflation begins to pick up, leading to lower demand, falling corporate earnings and eventually the fourth stage – recession.

Index

A statistical measure of group of basket of securities, or other financial instruments. For example, the S&P 500 Index indicates the performance of the largest 500 US companies’ stocks. Each index has its own calculation method, usually expressed as a change from a base value.

Profit margin

The amount by which the sales of a product or service exceeds business and production costs.

Share price

The price to purchase (or sell) one share in a company, not including fees or taxes.

Valuation metrics

Metrics used to gauge a company’s performance, financial health and expectations for future earnings, eg. price to earnings (P/E) ratio and return on equity (ROE).

Volatility

The rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. The higher the volatility the higher the risk of the investment.

Yield

The level of income on a security over a set period, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price. For investment trusts: Calculated by dividing the current financial year’s dividends per share (this will include prospective dividends) by the current price per share, then multiplying by 100 to arrive at a percentage figure.

Disclaimer

References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

There is no guarantee that past trends will continue, or forecasts will be realised.

Past performance does not predict future returns.

Janus Henderson Fund Managers UK Limited was appointed as the AIFM of the North American Income Trust with effect from 1 August 2024. Prior to that date, the North American Income Trust’s AIFM was Aberdeen Fund Managers Limited and all information contained in this document should be considered accordingly

Not for onward distribution. Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Henderson Investors International Limited (reg no. 3594615), Janus Henderson Investors UK Limited (reg. no. 906355), Janus Henderson Fund Management UK Limited (reg. no. 2678531), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority), Tabula Investment Management Limited (reg. no. 11286661 at 10 Norwich Street, London, United Kingdom, EC4A 1BD and regulated by the Financial Conduct Authority) and Janus Henderson Investors Europe S.A. (reg no. B22848 at 78, Avenue de la Liberté, L-1930 Luxembourg, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

Important information

Please read the following important information regarding funds related to this article.

Specific risks

Where the Company invests in assets that are denominated in currencies other than the base currency, the currency exchange rate movements may cause the value of investments to fall as well as rise.
This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.
Using derivatives exposes the Company to risks different from - and potentially greater than - the risks associated with investing directly in securities. It may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
All or part of the Company's management fee is taken from its capital. While this allows more income to be paid, it may also restrict capital growth or even result in capital erosion over time.

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