BlackRock Income and Growth Investment Trust NAV outperforms FTSE All-Share in April

BlackRock

BlackRock Income and Growth Investment Trust plc (LON:BRIG) has announced its latest portfolio update.

For more information on the BlackRock Income and Growth Investment Trust and how to access the opportunities resented by the income and growth sector, please visit: www.blackrock.com/uk/brig

All information is at 30 April 2022 and unaudited.

Performance at month end with net income reinvested

One
Month
Three
Months
One
Year
Three
Years
Five
Years
Since
1 April
2012
Sterling
Share price1.4%0.3%5.5%6.1%13.5%102.9%
Net asset value0.8%2.2%7.2%13.6%21.6%104.4%
FTSE All-Share Total Return0.3%1.1%8.7%14.1%26.6%100.2%
Source: BlackRock

BlackRock took over the investment management of the Company with effect from 1 April 2012.

At month end

Sterling:

Net asset value – capital only:204.13p
Net asset value – cum income*:207.67p
Share price:187.00p
Total assets (including income):£48.0m
Discount to cum-income NAV:10.0%
Gearing:1.4%
Net yield**:3.9%
Ordinary shares in issue***:21,200,636
Gearing range (as a % of net assets):0-20%
Ongoing charges****:1.2%

* Includes net revenue of 3.54 pence per share

** The Company’s yield based on dividends announced in the last 12 months as at the date of the release of this announcement is 3.9% and includes the 2021 interim dividend of 2.60p per share declared on 23 June 2021 and paid to shareholders on 1 September 2021 and the 2021 final dividend of 4.60p per share declared on 13 January 2022 and paid to shareholders on 17 March 2022.

*** excludes 10,081,532 shares held in treasury.

**** Calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs for the year ended 31 October 2021.

Sector AnalysisTotal assets (%)
Support Services12.8
Pharmaceuticals & Biotechnology9.0
Household Goods & Home Construction7.5
Oil & Gas Producers7.4
Media7.2
Mining6.7
Life Insurance5.9
Financial Services5.0
Banks4.6
Nonlife Insurance3.8
Tobacco3.4
Health Care Equipment & Services2.6
Food Producers2.6
Electronic & Electrical Equipment2.5
Travel & Leisure2.4
General Retailers1.6
Personal Goods1.6
Fixed Line Telecommunications1.4
Electricity1.3
Gas, Water & Multiutilities1.2
Software & Computer Services0.9
Industrial Engineering0.8
Real Estate Investment Trusts0.7
Net Current Assets7.1
—–
Total100.0
=====
Country AnalysisPercentage
United Kingdom86.0
United States4.2
France2.7
Net Current Assets7.1
—–
100.0
=====

Top 10 holdings
Fund %
AstraZeneca7.6
Shell6.6
Rio Tinto5.0
RELX5.0
Reckitt Benckiser4.3
British American Tobacco3.4
3i Group3.2
Phoenix Group3.1
Electrocomponents3.1
Standard Chartered2.9

Commenting on the markets, representing the Investment Manager noted:

Performance Overview:

The Company returned 0.8% during the month, outperforming the FTSE All-Share which returned 0.3%.

The UK equity market edged higher during April, returning 0.3%. As a result, the UK remains in positive territory YTD in 2022 with a return of 0.8% making it a clear outlier versus other developed equity markets.

Growth stocks continued to see weakness, led by concerns that the inflationary environment would negatively impact the economy, shifting assets towards safe havens. As a result, traditional defensive sectors such as Pharmaceuticals, Tobacco and Utilities outperformed.

In the U.S., the FED took an even more hawkish stance in April and highlighted its desire to tackle rising prices after the headline inflation climbed to 8.5%1, the highest rate since 1981. The U.S.10-year treasury yield continued to advance throughout the month and closed just below 3%2, creating an even more unfavourable environment for equities trading on high valuations fuelled by speculative future cash flows.

Within the positive return of the UK market as a whole, there was divergence between the size indices. The large cap FTSE 100 index outperformed given its heavy weighting of defensive sectors and US Dollar earners. Meanwhile the small & mid-cap indices lagged as a result of its UK domestic and consumer facing business which struggled against the backdrop of the ongoing cost of living crisis.

Stocks:

The portfolio performed broadly in-line with the benchmark during April; contribution to returns came from our underweight positioning in the Financial sector and our security selection in the Consumer Services and Consumer Goods sectors.

Having had a strong run year-to-date, the Basic Materials sector was weaker during April where portfolio holdings Rio Tinto and BHP were top detractors. More cyclical sectors, including industrial,  struggled during the period as investors showed growing concerns around the economic growth impact of inflationary concerns and increased rate expectations. Schneider Electric detracted from returns despite delivering strong results in the month on fears of an economic slowdown, as well as on concerns around further supply chain impacts, notably exacerbated by Chinese lockdowns. We continue to believe in the strong tailwinds for the company from global energy transition, with rising oil and gas prices highlighting the importance of energy and carbon efficiency.

More defensive sectors including Utilities and Health Care fared better during April. Accordingly, our holdings in Sanofi and Smith & Nephew were amongst the top contributors to performance. Consumer Staples names like Tate & Lyle also contributed to returns. Reckitt Benckiser announced better than expected results in the month and contributed to portfolio returns.

Portfolio Activity:

During the month, we sold our holding Tesco as we continued to reduce our Consumer discretionary exposure in the portfolio. We purchased a new holding in Centrica, the British gas company, as we view it as a beneficiary of rising energy costs and increased focus on security of supply.

Outlook:

We are conscious that, at the time of writing, there is a significant conflict and human suffering. Whilst we reference the investment implications of this, we recognise there are also tremendous implications for humanity. The Russian invasion of Ukraine has contributed to not just the volatility of 2022, but also the range of outcomes. The backdrop for global equities therefore, in our view, is mixed. Although demand remains strong, the outlook for corporate revenue and earnings growth is likely to worsen over the course of 2022 as the potential negative jaws of rising oil prices and rates, raises the spectre once again of Stagflation. It is still likely that government stimulus is retracted, and monetary policy is tightened in the face of more persistent inflationary pressures. It will be incredibly important to focus on companies with strong, competitive positions, at attractive valuations that can deliver in this environment.

Central banks, universally across the developed world, have started the year in a far more hawkish manner and as a result, market expectations for higher rates and faster quantitative tightening have risen considerably. Time will tell whether the conflict impacts the growth outlook and therefore the hawkishness of central banks. It is also more likely we will see increasingly divergent regional monetary approaches with the US being somewhat more insulated from the impact of the conflict, than for example Europe.  We still do not know whether the current inflationary trends are the temporary impact from the significant Covid stimulus, the unwinding of extreme Covid behaviours, a more structural shift in the cost of labour, the impact on costs from the decarbonisation agenda or a combination of the above. It is difficult to have a high degree of confidence on the outcome but we would note, given the uncertainty, there is a rising risk of a policy mistake; either being too late to tighten and/or tightening too hard. We expect this, and the geopolitical ramifications of the Ukraine war, to be the prevailing debate of 2022 and beyond.

The strain on supply chains, caused by strong economic activity overwhelming Covid afflicted capacity and restricted labour availability, will continue to provide inflationary pressures which can squeeze companies’ margins. As a reminder, we continue to concentrate the portfolio on businesses with pricing power and durable, competitive advantages as we see these as best placed to protect margins and returns over the medium and long-term. However, a notable feature of our conversations with a wide range of corporates in 2021 was the ease with which they were able to pass on cost increases and protect or expand margins.  Management teams have pointed to robust demand, prioritisation of security of supply as well as well-publicised supply chain disruption and cost pressures. However, we believe that as some of the transitory inflationary pressures start to fade (e.g. commodity prices, supply chain disruption) then pricing conversations will become more challenging. We are also increasingly focused on wage inflation which may be more structural and yet, in our experience, harder to pass on. Corporates have already pointed to wages picking up, the introduction of bonuses and growing pressure on employee retention rates as competition for labour intensifies. We therefore believe that employee retention will be an important differentiator in 2022 given the productivity benefits of a stable workforce as labour market tighten further.

We also note the UK’s relative valuation discount to global equity markets has continued to widen over the course of 2021, despite the resurgence in takeover activity as bidders capitalise on this arbitrage. Specifically, we’ve seen acquisitions of real assets and a desire to find unlevered free cash flow. As we move into 2022, we see cash generation continuing to improve and dividends payments recovering; broadly speaking we’ve been surprised by how quickly dividends have come back with large contributions from the mining sector where the likes of Rio Tinto and BHP have been able to pay large special dividends. While most companies are paying dividends once more, we note the large contribution from special dividends that may not persist. That said, as the highest dividend yielding market in the developed world, we see the fundamental valuation of the UK as attractive. We also view the outlook for ordinary dividends for the UK market with optimism as most companies have emerged from the Covid crisis with appropriate dividend policies.

We continue to have conviction in cash generative companies with durable competitive advantages, exceptional management teams and underappreciated growth potential. At present, whilst we are excited by the attractive stock-specific opportunities on offer, we continue to approach the year with balance in the portfolio.

1Source: 12 April 2022, The Guardian (https://www.theguardian.com/business/2022/apr/12/us-inflation-rate-march-2022 )

You might also enjoy reading  BlackRock Income and Growth Investment Trust H1 NAV outperformed FTSE All-Share Index

2Source: 04/05/2022, Trading View (https://www.tradingview.com/chart/ )

For more information on the BlackRock Income and Growth Investment Trust and how to access the opportunities resented by the income and growth sector, please visit: www.blackrock.com/uk/brig

Find more news, interviews, share price & company profile here for:
BlackRock Income and Growth Investment Trust plc

Good news travels fast (but only if you make that happen):

Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on facebook
Facebook
Share on email
Email
Share on reddit
Reddit
Find more news, interviews, share price & company profile here for:
BlackRock Income and Growth Investment Trust plc

AIM All Share Index