BlackRock Income and Growth Investment Trust NAV returned +14.1%, outperforming FTSE All-Share

BlackRock

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

All information is at 30 November 2020 and unaudited.

For more information on this Trust and how to access the opportunities presented by the income and growth sector, please visit: www.blackrock.com/uk/brig

Performance at month end with net income reinvested

One
Month
Three
Months
One
Year
Three
Years
Five
Years
Since
1 April
2012
Sterling
Share price9.5%8.2%-6.2%-1.3%13.4%81.3%
Net asset value14.1%7.4%-7.7%-0.7%14.3%71.1%
FTSE All-Share Total Return12.7%6.6%-10.3%-1.9%22.1%61.6%

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:181.36p
Net asset value – cum income*:184.53p
Share price:178.00p
Total assets (including income):45.5m
Discount to cum-income NAV:3.5%
Gearing:4.2%
Net yield**:4.0%
Ordinary shares in issue***:22,511,625
Gearing range (as a % of net assets):0-20%
Ongoing charges****:1.1%

* Includes net revenue of 3.17 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 4.4% and includes the 2019 final dividend of 4.60p per share declared on 24 December 2019 and paid to shareholders on 19 March 2020 and the 2020 interim dividend of 2.60p per share declared on 24 June 2020 and paid to shareholders on 1 September 2020.

*** 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 2019.

Sector AnalysisTotal assets (%)
Financial Services11.5
Pharmaceuticals & Biotechnology7.4
Household Goods & Home Construction7.4
Support Services7.3
Personal Goods6.5
Media6.4
Banks6.0
Mining5.4
Oil & Gas Producers4.9
Tobacco4.3
Gas, Water & Multiutilities3.6
Travel & Leisure3.5
General Retailers3.3
Life Insurance3.2
Nonlife Insurance3.0
Food & Drug Retailers3.0
Health Care Equipment & Services3.0
Industrial Engineering1.5
Electronic & Electrical Equipment1.4
Technology Hardware & Equipment1.1
General Industrials0.7
Real Estate Investment Trusts0.6
Net Current Assets5.0
—–
Total100.0
=====
Country AnalysisPercentage
United Kingdom92.5
United States2.5
Net Current Assets5.0
—–
100.0
=====
Top 10 holdingsFund %
AstraZeneca6.1
Unilever5.2
RELX4.9
Reckitt Benckiser4.4
British American Tobacco4.3
Rio Tinto3.7
Royal Dutch Shell ‘B’3.3
Lloyds Banking Group3.3
Tesco3.0
Smith & Nephew3.0

Commenting on the markets, representing the Investment Manager noted:

Performance Overview:

The Company returned +14.1% during the month, outperforming the FTSE All-Share which returned +12.7%. 

Market Summary:

Equity markets rallied during November as the US election passed and Phase three trial results from three vaccine candidates (Pfizer/BioNTech, Moderna and Oxford/AstraZeneca) indicated significant positive efficacy. These events sparked one of the sharpest rotations away from growth shares and into value shares on record. The rotation saw many of the biggest losers this year making the greatest gains during November; resulting in UK and European indices outperforming other developed equity markets. The FTSE 100, with its heavy exposure to value and cyclicality, recorded its best month in 31 years.

The risk-on environment during the month saw the US dollar weaken, meanwhile the Pound and Euro both rose, reaching one and two-year highs respectively, reflecting the building consensus that a Brexit deal could be nearing. The risk-on environment during the month saw the US dollar weaken and pushed the euro to a two-year high. The VIX index of one-month implied volatility briefly fell below 20 for the first time since the March selloff.

In the UK, the asset purchase programme was increased by a greater than expected £150bn, on the same day that the Chancellor confirmed that the furlough scheme will be extended until March. A second nationwide lockdown was implemented after a steep rise in coronavirus cases.

The FTSE All Share Index rose 12.7% during the month with Oil & Gas, Telecommunications and Financials as top positive performing sectors. The FTSE 100 rose 12.4% over the month, falling short of the 14.4% record set in January 1989.

Stocks:

Stock selection in financials was the largest contributor to returns. Security selection in consumer staples also contributed. On the negative side, the Company’s underweight exposure to oil and gas was the principal detractor from returns. The overweight to consumer goods, particularly personal goods detracted from returns.

Taylor Wimpey was the top contributor to returns. Shares benefitted from the rotation into cyclicals, which generally outperformed the market over the month. Travel & Leisure stocks also rebounded on news of the COVID vaccine. Accordingly, Whitbread and SSP Group also contributed to returns.

On the negative side, COVID-beneficiaries and defensives generally lagged the market and as a result, our holdings in Reckitt Benckiser and Unilever detracted from returns. Being underweight Royal Dutch Shell also detracted from returns as energy stocks were very strong in the month.

Portfolio Activity:

Over the month Legal and General was purchased given our growing confidence around the sustainability of the dividend as macro conditions improve, as well as Hays, the recruitment company. We sold Serco, Vodafone and Fevertree. We added to Electrocomponents, Smith & Nephew, M&G and Reckitt Benckiser and trimmed United Utilities, Next, Taylor Wimpey and Ferguson.

Dividends

From peak to trough, FTSE All Share dividends fell by around 40%. The Company has fared better than this as we have either not owned or been underweight companies suffering the biggest cuts, and conversely, we have been overweight the more resilient parts of the market. We estimate that our Company has seen a c.30% peak to trough decline in dividends.  We believe that this relative resilience stems from our focus on identifying cash generative franchises with robust balance sheets.   

When assessing the dividend outlook for the FTSE All Share, we estimate that around half of this 40% peak-to-trough reduction in dividends will prove permanent and half will be temporary. Turning to the Company, we expect less than 10% of the portfolio’s dividend to be permanently impaired and we are already seeing a number of holdings coming back to the dividend list, in some cases reinstating dividends that had been deferred during the pandemic.

We view the dividend outlook for the UK market with renewed optimism as we expect dividends, in aggregate, to be more resilient and to grow faster in future.  A number of companies that we have considered to be overdistributing for a number of years have now reset their distributions to more appropriate levels.  This gives us confidence that UK Equities offer an attractive source of yield in an income-starved global context. Additionally, the Company income reserve provides further resilience to the Company’s dividend outlook.

Outlook:

At the time of writing, the UK’s second lockdown is drawing to a close, and we have seen several national lockdowns imposed across Europe, as well as rising cases in a number of developed markets, including the US. This is impacting economic activity once more and we think it is likely to persist throughout the winter.

On a more positive note, though, we now have increasing evidence of a workable vaccine, with positive trials from at least 3 different vaccines and vaccinations could start by year end. This news has provided the market and particularly the industries hardest hit by COVID with hope that there is light at the end of the tunnel and that a return to ‘normal life’ as we used to know it could be within our reach next year. In the meantime, we anticipate governments and central banks will continue to provide fiscal and monetary support. We would also note that corporate balance sheets have, in some cases, increased their levels of debt to withstand the liquidity shocks. Whilst economies will recover in 2021, some companies’ earnings and cash returns will take longer to recover under the burden of higher levels of borrowing.

Although president-elect Biden’s win was largely expected in the US presidential election, the Republicans have fared better in Congress and the Senate, such that a democratic ‘clean sweep’ is unlikely. This has implications for fiscal stimulus and regulation for industries such as technology, healthcare and tobacco where we believe onerous regulation is less likely. There is also likely to be significantly less stimulus than was anticipated had we had a Democratic clean sweep, which has implications for bond yields and the banking sector. It is, as yet, unclear how Sino-US tensions will evolve from here, but we do not anticipate a material change.

From a Brexit perspective, at the time of writing the outlook for the UK remains unclear. However, we would note that UK valuations are extreme and even on an industry-adjusted basis remain at multi decade lows vs other international markets. We do believe that once the market has certainty, we could see this dispersion narrow, supporting our view that now is a great time to invest in the UK market.

We continue use the scale and breath of the platform at BlackRock to leverage significant resources across stock analytics, market insights and data science. We seek to ensure the Company continues to build on the resilience it has demonstrated amidst the volatility year to date to deliver strong capital and dividend growth over the long term.

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

22 December 2020

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BlackRock Income and Growth Investment Trust plc

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