The global coronavirus outbreak has changed everyday life in profound ways ― and will likely reshape the future as well. Tony DeSpirito, Co-Manager of the BlackRock North American Income Trust plc (LON:BRNA), identifies five areas of change that could have implications for investors.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
This is no ordinary moment in history. The COVID-19 outbreak is likely to prove a defining moment for individuals, businesses and industries worldwide. We believe it’s important to look past the next few weeks to the months and years ahead. Chances are the world will look very different than it did when we started 2020 ― and that can mean new avenues for investors to explore. These are five areas that may look very different as the world recalibrates in the wake of the global coronavirus pandemic.
1. Technology to power a low-contact world
Technology was a strong performer before the crisis and is poised for continued strength. The crisis has turbocharged trends already in motion: remote offices, online education, online gaming and streaming. We expect these and many more manifestations of a virtual life will only accelerate and the software and infrastructure to support them will be in increased demand.
Beyond that, technology to power contact-free activity of all sorts could benefit. Consider driver-less delivery, telehealth and eSports. 5G could also get a boost as speed of data transfer becomes a more imminent need in remote work settings.
2. Global vs. local debate
To the extent countries look inward to care for their populations and economies, we could see a move from the decades-long trend of globalisation to regionalisation or localisation. U.S.-China trade tensions had already prompted questions about the location of global supply chains and risk of concentration. Coronavirus intensified the attention.
Supply chains will need to diversify to enhance their resilience. Many countries will likely look to bring manufacturing home. Yet shifting from a concentrated to a more diversified supply chain will come with costs. Companies can either absorb these costs (which would hurt profitability) or pass them on to consumers by charging higher prices for end products (which would be inflationary).
3. Company balance sheets reconsidered
The definition of a “solid” balance sheet may be rethought. Companies are designed to withstand recessions, but not months of zero revenue. We’ve already seen some companies in deeply affected industries cut dividends and seek to raise capital to secure greater liquidity. Many of these companies had more debt than they should have. They may have made acquisitions but taken on debt to do so. We believe use of leverage may be reassessed.
4. ESG accelerated
We see the coronavirus crisis as a defining moment for ESG (environmental, social and governance) -related investing. The way individual companies have behaved toward society in this crisis will be remembered and business will favour those deemed to have done the right thing by their employees, customers and communities. At the same time, coronavirus has reminded us that when it comes to human vs. nature, nature often has the upper hand. This could be a pivotal point for environmental considerations such as climate change.
ESG is no longer only about controversies and downside risks but we believe will increasingly impact company fundamentals and valuation multiples. Investors, it seems, are paying attention: sustainable strategies have outperformed in the recent downturn and continue to attract inflows.
5. Slow ease back to leisure
Leisure is likely to be depressed for quite a while as virus concerns weigh heavily on hearts and minds worldwide. Once a vaccine is in place, however, we expect to see a healthy rebound in leisure travel. As the world returns to “normal,” people will want to get out and experience life to its fullest again. History is worth revisiting here: The 1918-1920 influenza pandemic coincided with the end of WWI, which was followed by the roaring 20s.
Work-related travel may be another story. Company managements now have real-time evidence that video conferencing is both an effective and economically efficient alternative to in-person meetings and events. Business travel may never return to pre-pandemic levels.
The day will come when coronavirus is a memory. We are all in anxious wait. Until then, the ability to look beyond the current moment, think critically about the world and invest in its future potential, truly sets active management apart.
Unless otherwise stated all data is sourced from BlackRock as at May 2020.
For more information on this Trust and how to access the potential opportunities presented by North American markets, please visit www.blackrock.com/uk/brna
Risk Warnings
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Trust Specific Risks
Exchange rate risk: The return of your investment may increase or decrease as a result of currency fluctuations.
Risk to capital through derivative use: The Fund may use derivatives to aim to generate more income. This may reduce the potential for capital growth.
Capital growth/Income variation risk: Investors in this Fund should understand that capital growth is not a priority and values may fluctuate and the level of income may vary from time to time and is not guaranteed.
Derivative risk: The Fund uses derivatives as part of its investment strategy. Compared to a fund which only invests in traditional instruments such as stocks and bonds, derivatives are potentially subject to a higher level of risk.
Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.
Important Information
Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.
The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.
Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.
The BlackRock North American Income Trust plc currently conducts its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.
BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether this product is suitable, please read the Key Investor Document (KID) and the current Annual and Half Yearly Financial Reports which are available on blackrock.com/uk/brna and which provide more information about the risk profile of the investment. If after reading this you have any questions or would like any additional information, please contact your financial adviser or speak to our Investor Services Team.
Any research in this material has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.
This material is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.
© 2020 BlackRock, Inc. All Rights reserved.
