Host: So welcome, everyone.

If you’ve attended one of these already today, then thanks so much for attending again.

If not, very brief bit of housekeeping before I introduce Fran.

Do ask questions. There’s a Q&A box in the bottom right-hand corner.

You can type your questions in there.

I will be reading those whilst Fran’s talking.

Don’t be shy. Ask a question.

No one else can see it other than me, so all questions greatly appreciated.

And we are recording this so you can watch it back later.

You’ll get a notification when it’s available to view, and you can download the slides to look at those as well.

So here we are.

It’s the big one. It’s the US.

Still the biggest market, despite all reports of other markets stealing some of its lunch.

It’s still almost seventy per cent of the index and just completed one of the largest IPOs in history.

So, a really important market to get right.

And for income investors, it can sometimes be a market that they feel is hard to access.

But actually, when you look underneath the kind of headlines of Mag Seven and the technology growth that we’ve seen in the US over many, many years, there are a lot of companies that have been paying dividends for a long time.

And it is very, very possible to construct an equity income portfolio with some truly world-class companies and Fran will come on to talk about this, but the trust has a very strong dividend growth record, which exceeds many UK equity income portfolios.

So that can provide a really strong anchor in an equity income portfolio.

And so with that, Fran will speak for perhaps twenty, twenty-five minutes, and then we’ll have time for Q&A after that.

And so Fran, over to you.

Fran Radano: Great.

Thanks, Alan. I appreciate the chat here and I look forward to speaking with you guys and feel free to ask questions and have a good dialogue here.

But let me give you a little background on North American Income Trust.

Many of you are familiar with the Henderson’s franchise.

This is the Denver headquarter Janus franchise that runs this portfolio, so Janus Henderson.

And what’s really great about this team is the strength and breadth of the team.

A wide analyst team.

We have forty-one analysts, firm-wide, many of whom work on this product to some degree.

We have a central research format and what’s very good about this is there’s career analysts.

So it’s not just sort of a young bullpen of analysts, but people who can actually make a career, who don’t want to get necessarily into portfolio management, feel very comfortable in their sector.

And we have roughly thirty-five, forty billion dollars attached to that with research funds.

So there is a dedicated avenue for these analysts.

So we do have analysts with ten, twenty, thirty years of experience, which is very rare in this industry.

And I think that is very useful for a fund manager to be able to speak to the analysts and speak on a peer-to-peer level with someone with the same amount of experience.

And then when you sort of look down the lot here, the trading team, exceptional trading team, always high quality, great dialogue between the fund managers and trading, and then the risk team.

The risk team is very important for us to make sure that there’s not any unintended risks that we have when building a portfolio.

So I think that the team is something you really can’t underemphasise the importance thereof.

And then we just talk about our process here.

It’s high quality research.

We’re looking for cash-generative companies.

We’re risk-aware when building these portfolios and the compensation scheme here, very transparent, so people don’t have to worry about that.

Just do your job and things tend to work out well here for people at Janus Henderson.

On the next slide, this is myself and Jeremiah, co-managers.

I’ve been managing this fund since the middle of twenty fifteen.

I worked with my predecessor manager since twenty twelve when the fund was converted from a tracker trust.

And then Jeremiah joined in twenty twenty-four and a great complement to me.

He’s great.

He has a very strong background in technology and growth stocks, and I have a great background in income stocks, so it tends to have a nice complement to one another, and we work as a team.

We talk daily.

I joke that I probably talk with Jeremiah more than I talk to my wife.

So it’s a great dialogue.

We ask the hard questions and we do the work and we hopefully come to an optimal portfolio of best ideas, forty-five to fifty stock type portfolio.

And this is sort of an overarching view of the fund.

Assets are over five hundred million.

Dividend growth, which I think is important.

This isn’t a high dividend fund per se.

Dividend yield is over three percent, but more importantly for us, we’re looking for strong dividend growers, and strong dividend growers are born of strong earnings growers.

So if we can see strong revenue growth, strong earnings growth, we’ll have that strong dividend growth.

So it’s a true covered dividend.

It’s progressive.

Revenue reserves are over a year, so we have the wherewithal during periods of stress.

I would tell you that we’ve only had one dividend cut and it was during COVID.

So the track record here is strong.

We’re not necessarily looking for the highest payout ratios.

We’re looking for those companies that pay a proper dividend, but more importantly, invest in the business and invest for growth, because at the end of the day, it’s a total return game.

It’s not just a how high can we make the dividend.

We could surely make it higher, but we want this to be a strong growth and income portfolio.

So a couple benchmarks, the Russell 1000 Value, which has become a little more tech-heavy, has some non-yielders in there, but a well-known benchmark.

And then the S&P High Yield Dividend Aristocrats, which is sort of proper dividend payers that have a long track record of paying dividends.

So those are both decent reference benchmarks to judge us against.

Again, I mentioned best ideas, forty-five to fifty stocks, and then turnover, sort of a modest twenty-five to fifty.

I think when things are calm, we’re probably closer to the twenty-five side.

When things are more volatile, we will be opportunistic and make sort of those hard decisions at times.

And when everything sells off, maybe we can upgrade in quality for that stock that was maybe a little bit more expensive than we preferred.

But when we get those opportunities, we’ll take them.

So we will move turnover when the opportunities arise.

And here’s dividends and earnings growth.

I think there’s a lot of countries in here, but the US is up there at the top.

The dividend growth there has been consistent.

A critic may say it comes from a low base.

I wouldn’t disagree, that’s factually correct.

But again, we’re seeing strong dividend growth in our companies.

It’s something we measure on every stock, every year.

We talk to managements about this.

Again, it’s not the most important part of the business.

Investing in the company and investing for growth is important.

But that consistent dividend growth is something that is important as part of the process.

So when companies have that strong free cash flow, we want them to invest in growth, but we like having that dividend to keep them a bit disciplined and not have a lot of money where they’re looking at different projects that may have inferior returns.

We want them to focus on the best projects and with those surplus funds after that, pay them back in dividends.

And this just shows a list of the dividends.

Every stock in this portfolio is a dividend payer, but we do have a wide range, and this range very much will move depending on the value.

If high dividend stocks become cheap, we may add a little more weight to that.

If low dividend stocks become cheap, in our opinion, we may add more weight to that.

But suffice it to say, it’s a broad range of stocks.

It’s very diverse.

It’s not a traditional income fund that just has utilities and telcos and REITs.

This is very much a growth and income fund, and I think that’s what your expectation should be for this fund going forward.

And here’s our dividend track record.

We do pay quarterly dividends.

The growth rate since the twenty twelve conversion has been roughly seven per cent.

We just declared our first quarter dividend.

Our fiscal year ends in January, so even though we’re almost at the mid-year mark on a calendar basis, we just did declare our first quarter dividend, and it was over seven per cent.

So we’re continuing that trend.

The board is committed to a progressive dividend.

The dividend, importantly, has been covered every year.

And again, I mentioned revenue reserves earlier in excess of a year.

So we do have a very strong dividend growth profile with a very strong balance sheet behind it as far as the revenue reserves.

And then performance.

This is public information, so I won’t spend too much time on it, but good long-term performance.

We show both reference benchmarks, and importantly for me as a fund manager, the share price return up top has eclipsed the NAV return as the discounts move from a high single-digit range to something closer to a low single-digit range.

So I think the story is being well received by investors.

And I think that they see that there is another path in the US.

Where you can get growth, but you can also get some income alongside that.

And here’s our top ten holdings, a bit unique.

It’s not the seven names you’re used to seeing.

It’s a little bit different.

We like the mix here.

Again, this is just ten of forty-five to fifty holdings.

But our top ten typically are at least a third of the portfolio.

Here it’s a bit over thirty-five per cent.

So we do have some high conviction, and we look for diversification beyond that.

Needless to say, some interesting names here, and I’m going to go deeper into a couple of sectors just to show you a little bit further underneath the hood.

But again, a different list of names than you’re probably used to seeing.

And here’s some attribution.

We’re always transparent with performance.

We’ll always show our top performers, our bottom performers, and then we’ll show our sector weights and how that’s contributed.

A couple of things.

I used to like to focus on the outliers.

We’ll start with the bad news first.

When we look at our bottom five, Micron is down there.

It’s a stock that’s gone from a hundred to eleven hundred.

The dividend is five basis points, so it’s really not part of our remit.

It’s part of our benchmark.

So that shows as an outlier.

We do own Zoetis, and that’s one where it’s a small holding.

It’s been a bit disappointing.

We’re keeping this.

It’s a good, interesting name.

It’s animal health.

It’s pharmaceuticals for animals, and it’s a small holding, but we feel confident there, so we’re keeping that for now.

And then at the bottom, Philip Morris has been a holding since day one in twenty twelve.

And again, when the market goes up quite quickly, Philip Morris tends to lag, but we like this as a long-term compounder.

And then on the top side, a mix here.

Each successive month recently it’s a little tech-heavy, but we do have some AI and AI infrastructure names with Lam Research.

We have Dell that’s participating in this as well.

Berkshire is actually a non-holder, so I don’t want to take credit for that.

But Berkshire, interestingly, has a lot of end markets that look like our end markets.

So whether it’s power, whether it’s utilities, whether it’s insurance, whether it’s railroads, if Berkshire’s ever in the top five or bottom five, it’s really not a bother to me because we do capture the end markets there, just not in a diversified form in Berkshire, which does not pay a dividend as well.

And then Citigroup at the bottom, which was a more value-y name for us that we had owned.

We’ve actually just exited it, sold that on strength and traded up in quality, we believe.

Again, a tough decision for a stock that has done very well for us.

But again, still a top five contributor.

And if you look right beneath that, which you can’t see, there’s some healthcare names.

So it is a pretty wide list of stock contributors for this fund, and we feel very good about the outlook here.

And speaking of the outlook, just a little on the macro.

I know I tend to get a lot of questions on the macro and if what I’m reading in the FT is true or maybe let’s go to the next level.

But like any good president, midterm elections are coming up in a handful of months here, and presidents prime the pump.

And I show four different levers that they’re using to, I don’t want to say flood the economy with money, but add a nice backdrop.

So we’re looking at GDP despite the Iran war, despite higher gas prices.

We’re looking for GDP of at least two per cent, and we’re seeing strength, very broad-based.

We saw earnings in the first quarter over twenty-two per cent with revenues up twelve per cent.

So the economy’s pretty strong.

We’re looking actually for a similar earnings profile in Q2.

And then the back half of the year, maybe a bit of a fade, but again, very confident in both the sales and earnings growth and the Fed, and tariffs and fiscal, are a little bit of a tailwind for these companies.

So very good.

And I think what’s important here is fiscal policy.

If I were to circle something that’s more long-lasting, the fiscal policy, the bill that was signed into law last year, provides immediate expensing of capital.

So why is that important?

The US over the years has been accused of under-investing in businesses and just buying back stock.

I think right now what we’ve seen is a CapEx boom, and it goes beyond AI and data centres.

We’re seeing it across all sectors, and I think that’s important for the long-term growth of the US economy.

And now you have a fiscal benefit behind that.

So something that’s very structural in nature, and I think it’s going to provide a good runway for the US in the coming years.

And then Kevin Warsh, Fed Chair.

Is Trump going to jawbone and make him lower rates?

I think Warsh is a very strong candidate here.

And now he’s in the chair seat, and I think that he’s going to run this like a proper businessman and not a politician.

So yes, the guy on the left has some sway and there’s some rhetoric, but I think Kevin Warsh is going to be looked upon over the years as someone very credible, very transparent, and really focused on what’s best for the country over the long run, not a short-term phenomenon.

And then this is an interesting slide.

It’s probably not fully appreciated by many, and it’s maybe not in stock prices per se.

But the Mag Seven has had a tremendous run in earnings.

And when you look at earnings in the back half of the year, we actually see the four ninety-three outgrowing the Mag Seven.

There’s a bit of a law of large numbers for the Mag Seven.

The Mag Seven has spent a lot of capital on growing the business.

Some of these formerly capital-light companies are now capital-heavy, and you see depreciation coming in and flattening earnings for some of these companies.

But if nothing else, the earnings picture is broadening in the US, and I think that puts our fund in a very good position here longer term.

And then the portfolio.

It’s high-quality companies.

These are cash-generative companies.

Again, we’re not looking for the highest dividend yield.

We’re not looking for the highest payout ratios.

We’re looking for growth companies that pay a proper dividend and companies that we can theoretically hold indefinitely.

We’re not looking for companies to grow ten or twenty per cent this year and try to trade those stocks.

These are very much high-quality, high-returning companies with a proper management team and proper incentive structure to continue to grow this business for the long term.

And then a little deeper look under the hood here.

Financials.

A lot of names here, but I would tell you a fairly diverse group of holdings.

The one place where you will see some duplication is Morgan Stanley and Goldman Sachs.

We’ve been aggressively overweight capital markets, and Morgan Stanley and Goldman Sachs obviously give us almost a pure play to that.

We’ve been trimming a little bit of that into some strength, but needless to say it’s still a strong holding.

We feel very strongly about the capital markets.

Obviously, there was a big IPO, and there are a couple of big IPOs to come here, but the capital markets are very healthy.

M&A is at peak levels.

And then interestingly, on the private equity side, some of those portfolio holdings have not been sold yet.

So there is some latent powder here for these capital markets to continue to do what they’re doing and do it well.

But again, a broad mix, and we can talk about any of these names if needed.

And then in healthcare, another big sector for us.

Again, a pretty diverse list.

It’s not just four large-cap pharma companies that pay high dividends.

CVS, which is insurance.

They do have a retail pharmacy footprint.

Again, broad-based.

Johnson & Johnson, we know the pharma side of that, but it also has a very big medical device business.

Danaher, which is tools.

Abbott Labs and Medtronic, more on the device side again.

And then we have a couple more classic large-cap pharma names with AbbVie and Bristol Myers.

Then I mentioned Zoetis earlier, again animal health.

And then sector snapshot.

North American Income Trust is the yellow bar.

So it shows where we are.

We’re well diversified, but we’re willing to make some bets off benchmark where we see value.

Blue is the Russell one thousand value, and then the S&P Dividend Aristocrats in green.

So it just shows a little bit of the bets we’re willing to make, and we feel very confident in this broad, diverse portfolio that again is growth and income.

And then performance.

This is discrete performance on a year-by-year basis.

Again, public information, so I won’t spend too much time on that.

But again, we feel very confident in the trust going forward.

Where does NAIT fit?

I think for investors like yourselves this is really the ultimate question.

We’re showing you that there is something else beyond the Mag Seven.

Again, it’s not just a high income, high-yielding portfolio.

Very much a growth and income portfolio.

I showed you a different top ten than you’re probably used to seeing, and I think that when you look at this, it’s a very good core holding for people who want to participate in the growth of the US, but also like that quarterly dividend cheque that’s growing seven per cent.

So roughly two times inflation, arguably three times going forward.

But we feel very good about that.

Longer term, we feel like the companies and the wherewithal and how we project dividend growth can meet that sort of high threshold of mid to high single-digit dividend growth.

So again, that’s the portfolio.

I’m going to turn it over to Alan and open it up for questions, and we really appreciate your time today.

Host: Thanks, Fran.

I’m going to start with a question of my own and, in so asking, reveal my age.

But going back, as you said, the top ten is a list of companies that investors aren’t always used to seeing.

And the last time I encountered Texas Instruments was a calculator that I had at school.

So I was just going to ask, tell me about that, and maybe pick a couple of other companies in the top ten.

Because I think that gets to the heart of this, that it’s really different to the S&P 500, which everyone is familiar with.

Fran: Absolutely.

I think Texas Instruments is an interesting company.

It’s analogue semiconductors, so it’s not the highest technology out there.

It’s not cutting edge, but what they are is very important.

It’s a very important part of the industrial economy and the automotive economy, less so on personal electronics.

There are still Texas Instruments calculators out there.

But if you look at the bulk of their business, it’s industrial and automotive.

And I would tell you that automotive is still very much in a recession here with higher interest rates and cars lasting longer.

So again, there’s some latent earnings power there.

They spent a lot of capital over the last several years building out their fabs for domestic production, so we feel very good about them.

Capital intensity is now lowering, free cash flow is rising, and they’re very much a well-managed company that manages its business for the long term.

Their capital expenditure over the last few years is something a lot of public companies would not have done because it flattened earnings a bit.

But they did it thinking on a five, ten, twenty-year view, and I think they’re now coming out of that very well positioned.

They do have some data centre exposure.

It’s less than ten per cent and growing at a high clip, so I wouldn’t put this in the AI infrastructure camp.

This is more a classic industrial technology company, slotted as a technology company.

Very high quality, very cash-generative, high-margin business.

So that’s one of them.

If we go back to the top ten, I had Lamar Advertising in there.

The exact opposite.

These are the billboards you’ll see driving your car.

Lamar has dominated what we would call B and C markets, so more rural roads.

Very high-quality management team, and part of their growth story now is converting the old wooden billboards to something digital.

So instead of having one company on that billboard, you now have four, and you can rotate them throughout the day.

The example they would give is you could have the person selling coffee in the morning, maybe a financial services company during the day, and maybe a fine dining place in the evening.

So the digital business gives them more growth, more profits and more margin.

It involves a little bit of capital, but not that much.

Very cash-generative company.

Dividend yield that’s strong, and it continues to grow.

It’s in excess of five per cent and just something that is typically not found elsewhere.

So a company that we own as a firm fairly broadly.

And then Chevron is up top and what I would tell you is there’s a lot of energy companies in the US.

We only own two of them.

We own Chevron, which is a wide diverse company.

They obviously have some oil correlation and some natural gas as well, but they also have refining, they have marketing, they have chemicals.

So it’s an all-in-one-stop shop.

But we feel good about that, and we feel the value is there versus trying to synthetically build a Chevron with a refiner, with an E&P company, and with a chemicals company.

We actually feel that this gives us a nice blend.

They’re very good at allocating capital.

I got to meet with the CEO on a one-on-one basis recently and was able to understand what he’s thinking.

They have a toe in Venezuela, sort of a free call option there longer term, but again, a very well-run company, well-disciplined with their capital, and sort of a core holding for us.

Host: And there’s some other questions on, unsurprisingly, valuations, which I’ll come on to in a second, but I was just going to finish by asking about Enbridge, which I think some of our viewers will be familiar with.

Fran: Yeah. Enbridge is our other holding.

Host: It’s a Canadian company, isn’t it?

And so I just wonder whether there’s any implications from the US-Canadian relationship, because it’s pipelines across the border, isn’t it?

Fran: It’s pipelines.

It’s very much a toll taker, highly contracted, high-quality business.

They also own a few utilities, so if my analysts and I were here, we would look at it as maybe three-quarters pipeline toll taking, fully contracted, very predictable revenues, and then one quarter utility.

Again, predictable revenues, different business model.

But we just like what they’re doing.

We like the capital allocation.

We like the discipline.

A mid-single digit grower, so it’s not going to be the fastest grower in our portfolio, but very consistent, very predictable.

When we look out five years, it’s probably one of our easiest companies to model, where we see that mid-single digit dividend growth and that mid-single digit earnings growth.

So again, there are US companies that do similar things.

We feel very good with Enbridge, so it just shows that we will look across to our neighbours to the north if need be.

And because they’re in energy infrastructure, it’s really not as impacted as other sectors may be, such as financial services or whatnot.

Host: Yeah. Okay.

So let’s come on to valuations, because it’s very difficult to read any paragraph about US equities without that word coming up.

I think everyone watching this will know about the concentration.

But do you want to talk about valuations, contrast the valuations you look at, and maybe even provide some context with the UK and Europe, which obviously for an equity income investor are other sources that they might look at?

Fran: Yeah.

No. It’s usually the first question I’m asked.

Someone will look at me and say, “Why the US? It’s expensive.”

Interest rates aren’t zero anymore, which is important.

So the discounting mechanism isn’t zero, it’s something higher, so terminal values are thus lower.

I think importantly, if the US is on twenty-two, twenty-three, twenty-four times forward earnings, pick your number, we’re not there.

We’ve been between fifteen and seventeen.

We’re somewhere in the middle right now, sixteen, sixteen plus.

Again, we’re not looking for the cheapest companies.

We’re looking for companies that are fairly valued, and we’ve been able to find a bunch of companies that we think net out to sixteen.

But I would tell you we have some ten multiple companies and we have some twenty-five multiples in there.

It’s sort of a bell curve and it nets out to sixteen.

So we think we have a nice degree of safety.

I would also say that just because you own companies that net out to sixteen doesn’t mean you automatically outperform in a down market.

We got a little test yesterday with the market down over one hundred basis points and the Nasdaq down even more.

We were actually flat to up yesterday.

It’s one data point.

I’m not going to overstate it.

But needless to say, we like that element of safety in our portfolio.

We feel very good about it.

Again, we’re looking for growth.

We’re modelling double-digit growth in this portfolio, so we’re paying sixteen times for double-digit growth.

It’s not utilities, REITs and telcos that are lower value and higher yielding.

These are growth and income companies.

So again, we feel pretty good.

That’s our sweet spot.

There obviously are ways to get twenty-five, thirty, forty and fifty multiple companies in a portfolio.

This portfolio stays in our lane.

We do what we say we expect and again, it’s growth and income.

Host: And there’s a question relating to turnover and what’s the signals for buying and selling.

I’ll wrap into that.

In the UK, if a company is looking at cutting its dividend, it’s a big decision to make and everybody knows a dividend cut, even if it’s a well-thought-out one, is likely to impact the share price.

How important is it in corporate decision-making in the US for those companies that have got that kind of long-run dividend profile?

And then what causes you to sell and how much turnover do you have and what are your signals you look for to initiate a position as well?

Fran: These are all good pertinent questions.

I think when we look at turnover holistically, twenty-five to fifty is our range.

The fifty tends to be in more volatile times.

But again, it’s very much a bottom-up decision.

So if we have a company that doubles in value and we don’t see earnings growth that provides the same value that it did at initiation, we may sell it.

We’re only looking for forty-five to fifty stocks.

We’re not looking for seventy-five or a hundred.

So I would tell you as a fund manager, and I’m smiling, it’s not easy to sell stocks that have doubled and tripled because there’s proof points there and they’re usually good companies.

But we need to be disciplined and stay true to our valuation and dividend goals.

So those are some examples.

But we also have stocks where fundamentals have changed.

We owned a company, Booz Allen.

It wasn’t a big position, but it’s a consulting business that was heavily leveraged to the government.

During DOGE last year, they got cut back pretty aggressively.

It was probably penny-wise, pound-foolish.

But needless to say, it was one where we thought visibility was low.

And we sold at lower levels.

So sometimes that happens.

It’s not all stocks that double and triple and then we exit.

So a little bit of both, and those are humbling decisions.

Those are also hard decisions because, as a manager, falling into a value trap is probably the single biggest risk.

It’s easy to say, “The stock tripled, let’s sell.”

But when stocks go down twenty, thirty, forty per cent, and you bought it at one hundred and you’re selling it at sixty, it’s not a great feeling, but you need to do that sometimes.

I think between Jeremiah and me, we’ll bounce ideas around and sometimes we just throw our hands up and say, “You know what? We’re not going to have thesis drift here. We’ll take our losses and we’re going to find something better.”

That’s one way we’ll do it, and you need that discipline to be successful over time.

And then on an initiation front, typically these are high-quality companies that may be out of favour.

So whether it’s a retailer that we recently initiated that was sort of out of favour, when peers are trading at much higher multiples and we think they have a similar growth profile, maybe a touch less, but are trading at half the valuation.

So companies that are out of favour but have good bones to them, have good management, have maybe a change agent if a change agent was needed.

But sort of doing that, maybe getting paid two, three, four per cent in dividends while we wait for that inflection point, knowing that it’s impossible to just pick the inflection points.

So again, high-quality companies, typically out of favour, would be a classic initiation for us and something that we can be patient with.

You wouldn’t want to have ten or twenty of those companies in a forty-five to fifty stock portfolio, but a handful is usually a good starting point, and those stocks tend to re-rate quickly if and when our thesis plays out.

Host: And there’s a question about risk and how you look at risk, and I suppose with a forty-five stock portfolio, one thing we can say is that you’re not measuring risk against the composition of the index, or at least it doesn’t seem to be the dominant factor.

So how do you assess portfolio risk?

Yeah.

Fran: So I did mention our robust risk team.

We get monthly reports.

We can obviously get ad hoc reports on any day.

And I would tell you the number one risk within this portfolio is dividend yield.

We’re overexposed to dividend yield.

So our dividend yield of underlying companies is roughly three per cent.

Again, growing six, seven per cent on average.

US indices typically don’t have that.

The Russell Value dividend yield is roughly 1.6, 1.7 now, so we’re almost double that.

So that’s a risk.

It’s not a classic risk, but we want to be careful of interest rate risk.

If we own some banks or we own some REITs.

So we’re owning those knowing that going in, but we don’t want to wake up one day and realise rates roll over or rates shoot up and we underperform because of that.

Even if we like those underlying companies, maybe we need to manage position sizes a little bit better.

That would be a classic conversation with the risk team just to go over that.

And whether it’s currency related, whether it’s a currency mismatch.

As a growth and income manager with a valuation discipline, momentum tends to be a negative risk.

We have stocks and we’ll let stocks grow.

As we see growth rates grow, we’ll raise price targets if applicable, but typically we tend to trim back our winners a bit.

So a little bit of a negative momentum slant would be something on the other side of the risk continuum.

And obviously sectors and stock risk.

Because it’s forty-five or fifty stocks, our average position size is something north of two per cent.

It may be a small weight in the benchmark, so there are some stock-specific risks, there are some sector risks and again, we’re willing to build a bottom-up portfolio.

Sometimes we’re sector aware from a risk perspective.

But if we see value in certain sectors, we’re more than willing to take those bets in a careful, controlled manner.

Host: And that, I think, leads on to another question, which is that in terms of marketing at least, the Dividend Aristocrats Index has got a good name.

But there are passive strategies that superficially provide the same kind of exposure.

But you’re very different to the index.

So if you bought the index, what are the risks that you wouldn’t experience if you bought NAIT?

Fran: I think what I like about NAIT versus the Aristocrats is it’s a more diversified portfolio.

If you look at the Aristocrats, sometimes it’s heavy in utilities because utilities can sort of raise rates every year, so you get dividend growth every year.

So it tends to be a little bit overweight utilities.

It’ll be underweight some low-yielding industrials that have low payout ratios, perfectly good companies.

And then consumer staples.

Companies that again, with slow growth, can raise their dividend every year.

So you get a little bit of a sector mismatch.

So I think for us, we have a comparable yield but faster growth from both a revenue, earnings and dividend growth perspective.

So that’s probably the biggest point of differentiation.

Again, you can get a similar yield through an ETF.

But I think we like our combination of growth and income.

So I think we can get comparable income with faster growth, higher return on equity, higher return on invested capital.

That’s the crux of our portfolio here.

Host: And then going back to that really interesting slide you showed on the rebalancing of earnings growth.

I think lots of people have seen that incredible graph of CapEx in the US driven by the hyperscalers, as we’re now calling them.

Do you want to talk a little bit about what happened?

Because I think we’ve discussed this before, Fran, that there was a kind of hiatus in CapEx elsewhere in 2025 whilst that was going on.

And further, that extraordinary CapEx is going somewhere.

It’s going to somebody.

Is it going to companies in your portfolio?

Because is that one of the explanations for the green bars now picking up, that they’re now in receipt of some of that money?

Fran: Yep.

It’s an obvious question.

A lot of CapEx.

We know the quantum is numbers that are almost unquantifiable or unthinkable relative to history.

And when you look at AI and data centres specifically, I don’t want to say this in a trite fashion, but we have some picks-and-shovels types of companies.

So whether it’s Lam Research, which is semi-cap equipment, whether it’s Amphenol, which is connectivity.

We own Trane Technologies, which is HVAC.

We own Eaton, an industrial company that has power exposure.

And then I mentioned Texas Instruments earlier, which is nascent but has some chips going into that business.

So again, when you look at those companies I just mentioned, only part of their business is leveraged to the AI infrastructure play.

So we get exposure that way.

When those guys are spending, our companies are recipients, so that’s been good.

We also need to be careful of the risks.

When CapEx slows down, if and when it slows down, are our companies overexposed to that?

They tend not to be from an earnings basis, but from an earnings growth basis, that tends to be their fastest-growing area.

And obviously this is where valuation comes back into it.

Are we paying fair prices for these companies?

We’ve been trimmers of Lam Research specifically.

We’ve been trimmers of Dell.

Amphenol, a slight trim there as well.

So we’ve been pulling back, but the weights have been increasing, so sometimes it’s sort of running to stand still.

But we know we need to be a little sharper on those names because when the music stops, if it stops, those names tend to be vulnerable, even if the earnings impact isn’t as great as one would expect.

Host: Yeah. And then there’s also been a phase, hasn’t there, in markets where investors have been reassessing the quality of businesses and software as a service is the one that everyone’s alighted on.

Do you see, have you had cause to reassess any companies you own and have you had cause to reassess companies that perhaps have fallen into your index or fallen to attractive valuations as a result of being reappraised by the market?

Fran: Yeah.

So we don’t have a lot of software exposure.

Partly because most of those companies aren’t big dividend payers.

But we did buy one earlier this year.

We thought we bought it cleverly.

When we bought into it, we thought that one was not going to be disrupted by AI.

We still believe that.

The market does not believe that.

So that would be a position where we start with a typical starting position for us of maybe seventy-five to one hundred basis points.

That position is down to roughly sixty basis points now, so it’s underperformed.

We’re evaluating it now.

We’ve been evaluating it before we owned it, since we’ve owned it, and going forward.

And again, is it one of our fifty best stocks?

We’ll find out.

But right now we hold a small position there.

The software companies, I think we know the story here with AI and the value of a software engineer, the price compression, the margin compression, the negative operating leverage that nets out from that.

So those businesses are challenged.

We think there will be winners and losers there.

Commodity software, easy to say, but those companies are obviously most at risk.

If you’re a small business, do you put your tax and compliance away from Intuit to an AI startup?

I don’t think so.

We’re still modelling Intuit growth at double digits for this year and next year.

But the market’s derated that stock to roughly ten times.

So it’s something that we’re obviously aware of.

The market is the market.

We haven’t added to it yet.

We also haven’t exited, so it’s something that we’re just standing still on right now and carefully evaluating.

Again, it’s a small position, sixty basis points, the smallest position in the portfolio, quite honestly.

Again, not a lot of exposure because there are not a lot of dividends there, but it’s something that needs to be asked because software was liked because it was capital light and had recurring revenues.

Those things still exist, but the cost and the AI ability to disintermediate software engineering is something that was probably not expected a year ago and certainly not two years ago.

Host: And I’m going to come round to some more NAIT-specific structural questions.

If you could just go through the components of the dividend and how that’s generated, and then also just talk a bit about the safety net against discounts.

NAIT, as you mentioned, the discount has narrowed quite a bit.

So it’s not currently a particular issue, but NAIT has a few mechanisms in place to protect against future discounts, doesn’t it?

If you want to just run through those.

Fran: Yeah.

I think when the dividends, and I showed a slide earlier, I’ll bring it up.

We have a wide range of stocks that pay dividends here.

I would tell you that if you were to look at the higher-yielding companies, they tend to be a little slower growth.

Dividend growth there is probably low to mid-single digit.

When you come over to the lower yielders, they tend to be double-digit dividend growers, ten to twenty per cent dividend growth.

That’s what nets out to that five to seven per cent range.

And five is probably conservative.

We just declared our first quarter dividend at 7.1%.

So it’s a mix.

We’re not managing to seven per cent growth.

We’re managing to a total return number.

And that typically nets out in that six to seven per cent range.

So again, very comfortable, very predictable.

When I start the year, I can tell you, if the portfolio were static and turnover were zero, I can give you a very good estimate of what I expect dividend growth to be.

It’s very predictable.

Again, these aren’t the highest payout ratios.

These are very comfortable payout ratios for these companies and the growth is fairly predictable because we’re not looking at no-growth or low-growth companies.

We’re looking at mid-growth, proper-growth companies.

Not the fastest, but not the slowest.

And then from a discount mechanism perspective, I think it’s been extremely important over the last year or two, as we know with different activist investors.

I would tell you that in 2024 we bought back ten per cent of the company, so the board is very committed to that.

And then in 2025 we bought back another seven per cent.

We want to grow the portfolio, of course, but when the discount gets high, seven, eight, nine, ten, eleven, twelve per cent, we’re willing to buy back.

We bought back a little bit of stock a week or so ago at six-odd per cent.

So again, very committed to defending the discount here.

We feel there’s good value in this portfolio.

And I think the thought is that over time we think this is a pretty good mousetrap, and we think this portfolio has the ability to grow.

Buying back stock at ninety-four cents on the dollar, ninety-two cents on the dollar, is a good use of capital and would make both of those portfolios vibrant.

Host: Great.

And there are even some tentative signs in the investment trust sector of some issuing shares again.

So who knows?

Off the back of this presentation, maybe you’ll get an order.

Thanks, Fran.

That’s a really good comprehensive tour of the portfolio and US markets from a very different perspective.

I think everyone looking at this presentation would be pleased to learn something that didn’t involve the Mag Seven, with what is, as I said at the beginning, still the largest equity market and a really important one to get right.

So it’s been really informative.

Thanks everyone who’s on live. I did ask Fran yesterday if he’d talk about air conditioning and ice cream companies, but he hasn’t, so that’s a, that’s a fail.

But, uh- Next time Maybe it’s- If I get invited back.

But, he’s, he’s luxuriating in air conditioning in the US, whereas some of our viewers probably aren’t. So, so, I think we can forgive you for that one. As I said, this is recorded. You can always email us with any questions that didn’t get asked or answered, later. And you can also download the slides shortly to have a look at some of these charts. Thanks everyone, and, hope to see you again on the next one. Take care. Thank you.