North American Income Trust : Chair’s statement

Market Review

Macroeconomic uncertainty prevailed during the Company's financial year to 31 January 2024. Investors were particularly focused on monetary policy developments, geopolitical tensions and the uncertainty surrounding the possibility of either a recession or a soft landing for the US economy. Against this backdrop, the Company's net asset value (NAV) total return per share (which includes dividends reinvested) decreased by 1.6% in sterling terms compared to a 2.6% rise in the total return of the Company's primary reference index, the Russell 1000 Value Index, in sterling terms. The Company's share price total return fell by 0.9% as the Company's discount to NAV narrowed marginally to 9.1% from 9.3% at the previous year end. The investment trust sector, in general, experienced a widening of discounts over much of 2023, exacerbated by global uncertainty and higher interest rates available for cash which in turn led to increased activity in the sector in an effort to realise shareholder value. The Company uses its shareholder authority to buyback its own shares seeking to limit discount volatility and also provide liquidity in the Company's shares while signalling our confidence in the intrinsic value of the Company's portfolio. Even with the volatility witnessed in financial markets, US equities recorded gains over the year, with growth stocks significantly outperforming value stocks. The Investment Manager's Review goes into further detail on performance. The US Federal Reserve (the "Fed") continued with its monetary tightening measures in the first half of the financial year, with the central bank increasing the target range for the federal funds rate to 5.25%-5.50%, a level unseen in over two decades. In the latter half of the financial year, the Fed maintained interest rates and the messaging turned more dovish as price pressures reduced, fuelling expectations of monetary easing. However, annual core inflation remained above the Fed's 2% target, while conflicts in the Middle East and Ukraine increased the risk of an uptick in inflation and, at the end of 2023, the Fed signalled that it would proceed cautiously. On a positive note, the US economy remained strong and avoided the widely anticipated recession after the Fed's prolonged period of monetary tightening, as well as the banking sector failures that occurred earlier in 2023. The US government reached an agreement in June 2023 to suspend its debt ceiling, thereby avoiding a government shutdown, which helped markets. As the financial year progressed, investors embraced the likelihood of a soft landing for the economy, as opposed to a recession. Nevertheless, as I allude to in the Outlook section, the Board and Manager are well aware that macroeconomic uncertainty continues, especially with the ongoing conflicts in the Middle East and Ukraine and the upcoming US election.

Performance

The Company's portfolio underperformed its reference benchmark in sterling terms over the year to 31 January 2024. Stock selection, mainly in the materials sector, weighed on performance relative to the Russell 1000 Value Index, the primary reference index. Sector allocation, especially in the industrials sector, was also negative. For more details on performance, refer to the Investment Manager's review on page 23. The Board monitors portfolio performance regularly and receives quarterly reports from the Manager on portfolio changes and the decisions behind them.

Revenue Account

The Company's equity portfolio generated £17.1 million in revenue during the financial year, close to the £17.8 million in the previous year. Options continue to be part of the portfolio and represented 17.2% of the Company's total gross income, whilst corporate bonds accounted for only 2.6%. The Company's revenue return per ordinary share dipped marginally to 12.0 pence compared to last year's 12.2 pence.

Dividend

The Board remains committed to the Company's progressive dividend policy and extending the track record of thirteen consecutive years of dividend growth. The Board declared, on 28 March 2024, a fourth interim dividend of 3.9 pence per share, resulting in total dividends for the year ended 31 January 2024 of 11.7 pence per share (2023 - 11.0p) and representing annual growth of 6.4%. The fourth interim dividend will be paid on 3 May 2024 to shareholders on the register on 12 April 2024 (exdividend date: 11 April 2024).

Outlook

At the time of writing, investors expect the Fed to end its rate-hiking cycle and begin monetary easing in 2024. This is despite the Fed's somewhat conservative tone as its favoured measure of annual inflation, the core Personal Consumption Expenditures Price Index, remained above 2%. Additionally, conflict in the Middle East has increased the risk of a resurgence in inflation, due to possible oilsupply disruptions and rising shipping costs. While a robust US economy helped the country to avoid a recession in 2023, the risk has not completely gone. The Board and Investment Manager believe that a mild recession or soft landing remain in the balance. Meanwhile, the upcoming US election may add to market volatility, as investors remain focused on potential changes to government policies. Added to this, geopolitical issues elsewhere in the world could affect the global economy and financial markets in general. It is pleasing therefore to note that the Investment Manager has designed the Company's portfolio to include financially robust companies with strong incomegenerating potential and sound governance practices. The investment team continues to review the portfolio and seek opportunities to ensure its ability to withstand any volatility surrounding the forthcoming US Presidential election, as well as a possible economic downturn, as it seeks to protect against downside risks. The Company has made progressive annual dividend payments for thirteen consecutive years, including the period through the Covid-19 pandemic. The Board continues to remain positive on the strategy's ability to face turbulent times together with the sustainability of the Company's income and the comfort of the revenue reserve which has been built up to the equivalent of over one year's full dividend.

Performance table

Cumulative performance (%)

as at 29/02/24	1 month	3months	6 months	1 year	3 years	5 years
Share Price	283.0p	(2.1)	7.8	3.3	(2.4)	36.9	20.1
NAV*	327.4p	2.4	8.3	6.1	2.3	36.6	36.6
Russel 1000 Value		4.4	9.6	9.5	9.1	40.8	64.6

Discrete performance (%)

29/02/24	28/02/23	28/02/22	28/02/21	28/02/20
Share Price	(2.4)	12.4	24.8	(7.8)	(4.9)
NAV*	2.3	9.7	21.6	1.3	(1.3)
Russel 1000 Value	9.1	7.7	19.8	11.7	4.7

Five year dividend table (p)

Financial yearc	2022	2021	2020	2019	2018
Total dividend(p)	11.00	10.30	10.00	9.50	8.50

Total return; NAV to NAV, net income reinvested, GBP. Share price total return is on a mid-to-mid basis.
Dividend calculations are to reinvest as at the ex-dividend date. NAV returns based on NAVs with debt valued at fair value.
Source: abrdn Investments Limited, Lipper and Morningstar.
Past performance is not a guide to future performance.

Important information

Risk factors you should consider prior to investing:

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen's Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK.

Find out more at www.northamericanincome.co.uk or by registering for updates. You can also follow us on X and LinkedIn.