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BlackRock Income & Growth Investment Trust plc Portfolio Update

BlackRock Income & Growth Investment Trust plc (LON:BRIG) have provided the following update.

All information is at 31 March 2020 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 price   -16.8% -27.7% -18.0%-18.0%-6.2%46.9%
Net asset value -14.2% -24.4% -16.7%-12.7% 0.5%45.4%
FTSE All-Share Total Return -15.1% -25.1% -18.5%-12.2% 2.9%39.3%
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:156.68p
Net asset value – cum income*:159.09p
Share price:146.50p
Total assets (including income):£40.3m
Discount to cum-income NAV:7.9%
Gearing:2.5%
Net yield**:4.9%
Ordinary shares in issue***:22,840,600
Gearing range (as a % of net assets)0-20%
Ongoing charges****:1.1%
* includes net revenue of 2.41 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 4.9% 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 2019 interim dividend of 2.60p per share declared on 25 June 2019 and paid to shareholders on 2 September 2019.
*** excludes 10,093,332 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 (%)
Pharmaceuticals & Biotechnology8.5
Food Producers8.1
Household Goods & Home Construction7.4
Oil & Gas Producers6.6
Support Services6.2
Media6.2
Mining5.9
Financial Services5.7
Banks5.2
Gas, Water & Multiutilities4.9
Tobacco4.8
Travel & Leisure4.8
Food & Drug Retailers3.2
Health Care Equipment & Services2.9
Mobile Telecommunications2.6
Life Insurance2.2
General Retailers2.2
Electronic & Electrical Equipment1.3
Industrial Engineering1.1
Personal Goods1.0
Nonlife Insurance0.8
Construction & Materials0.5
Beverages0.2
Net Current Assets7.7
——
Total100.0
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Ten Largest Equity Investments
CompanyTotal assets (%)
AstraZeneca6.6
Unilever5.1
RELX4.9
National Grid4.9
British American Tobacco4.8
BHP4.2
Reckitt Benckiser4.1
Royal Dutch Shell ‘B’3.8
Tesco3.2
Associated British Foods3.0

Commenting on the markets, Adam Avigdori and David Goldman representing the Investment Manager noted:

The global pandemic continued to dominate events in March. In attempts to halt its spread for healthcare systems to cope, global economic activity is being deliberately frozen and halted. Global markets accordingly experienced significant sell-offs the magnitude and volatility of which echoed the falls from 2008; we saw new index lows and the VIX actually exceeding the highs from the global financial crisis, reaching 85%. The same amount of return dispersion was seen in the last month as was seen during the whole of 2017. The sell-off in risk assets was compounded after Saudi Arabia responded aggressively to Russia’s refusal to agree with OPEC’s latest round of output cuts, which saw crude prices plunge by more than 50% in March, a 67% decline for Q1. After the precipitous increase in cases in Europe, notably Italy, the World Health Organization declared COVID-19 a pandemic on March 12th. Several European countries started implementing lockdowns in an effort to mitigate the spread which led to the biggest one-day decline in markets since Black Monday in 1987.

In a bid to prevent an economic downturn, aggressive rate cuts were implemented by Central Banks; the Bank of England cut the Bank Rate to 0.1% and the US cut interest rates to zero. Additionally, the ECB asked European banks not to pay out dividends until at least October 2020 and the BoE requested UK banks to halt dividend payments. A coordinated and comprehensive global policy response was delivered with several countries announcing robust stimulus packages. The news of US authorities approving a $2th fiscal package (equating to 10% of GDP) was followed by a record-breaking session with the Dow’s biggest percentage gain since 1933. The introduction of further decisive and significant fiscal policy measures across major economies did help investor confidence to show signs of stabilising, however, the rally quickly faded as the number of reported cases in the US jumped and restrictions on movement were extended. As the number of new COVID-19 cases in China began to plateau, official PMIs rebounded back to expansion territory at the end of March and many Chinese factories returned to production. However, as the pandemic spreads globally and more nations implement social distancing measures, concerns of a global growth slowdown are likely to persist.

Not immune to the impact of the virus, the UK made an effort to use the full range of tools to mitigate economic impact. This included announcing a fiscal package with loan guarantee of £330bn (equivalent to 15% of GDP) a week after cutting interest rates. After giving social distancing guidance from March 20th, a quasi-lockdown was imposed on March 24th. Later in the month the UK government delivered a further fiscal package of unprecedented (but difficult to estimate) scale to support workers hit by coronavirus-related layoffs which created some positive reaction in the UK market.

Over the month, the BlackRock Income and Growth Investment Trust returned -14.2%, outperforming the benchmark, the FTSE All-Share which returned -15.1%.

Tesco was the largest contributor to performance. Share prices in food retailers were strong as news of customers stockpiling food as lockdowns were imposed. Equally, food retailers are likely to be beneficiaries of the closure of restaurants and cafés as they are increasingly relied upon for food. John Laing Group also contributed to performance. Its underlying assets tend to be economically insensitive. Given the company’s underlying investments are stable and its valuation undemanding, shares have held up relatively defensively. Reckitt Benckiser contributed to performance as it is a defensive company and as sales of products such as Dettol increased as a result of the pandemic.

The holdings in easyJet and Taylor Wimpey detracted from performance. The travel and housebuilding sectors have been weak given they are in the eye of the storm created by the coronavirus downturn with planes grounded in the case of the former, and building sites shut in the case of the latter. We continue to believe these franchises will survive and will come out of this economic shut down in strong positions than a number of their competitors. The Trust’s underweight position in Rio Tinto detracted from performance. Whilst we added to the position over the course of the month, we remain underweight. Shares held up as its mines remain open and production continues. Equally, as China reopens, demand there should recover. Mining shares more generally should also benefit from the fiscal stimulus announced, implying there will be more infrastructure.

Over the course of the month, we have removed positions with financial gearing, especially when this has been combined with operational gearing. Thus, our overall weighting in financials has reduced. The extreme market sell-off has also provided us with an unprecedented opportunity to buy great companies at great prices. We have bought positions in businesses where we feel comfortable around their liquidity, the balance sheet, and are of the view that the business is likely to emerge from this global, natural disaster stronger than its competition. We will continue to add new holdings to the trust where we see fit. 

•     During the month we bought positions in Next, Berkeley Group, Burberry, SSP Group, Rio Tinto and WH Smith.
•     We sold positions in CRH, Aviva, London Stock Exchange, WPP, Euromoney and St James’ Place.
•     We reduced positions in Tesco, 3i Group, HSBC.
•     We added to positions in BHP Group, Whitbread, Hiscox, Bodycote, Rightmove and Reckitt Benckiser.

The covid-19 crisis is the closest we have got to a global natural disaster, and its impact has been immediate. Entire industries are being shut down overnight with revenues effectively going to zero. It has been felt much more acutely than anything we have seen in recent memory. Whilst in ‘normal’ economic downturns, activity slows gradually over months, with ‘lockdowns’ by governments, activity has slowed very dramatically.

We will see the largest fall in nominal demand we have ever seen. The GDP impacts across the world are comfortably double digit. Early estimates imply that GDP in the US will contract by nearly 30% in the second quarter. Whilst the scale of this crisis has been unprecedented, we have also seen an unparalleled scale of government intervention as well. This should provide a cushion to consumer businesses that are being hurt by the impact of the shutdowns.

Coronavirus will be resolved, either through a vaccine, rolling containment policies or herd immunity. However, it is the duration of the pandemic and associated containment policies that will be crucial in determining the state of the economy and speed of recovery thereafter.

On Dividends:

At the time of writing, around 110 companies in the FTSE All Share have suspended their dividends. We expect this figure to rise further over the coming weeks and months. We are mindful of the scrutiny companies will face with regards to paying dividends, especially for those businesses accepting government support or cutting employee remuneration and/or headcount. For now, the language from the majority of companies has been to suspend, rather than cut the dividend. From here, everything will depend on the duration and severity of this crisis as to how many of these dividends come back. We continue to take a long-term approach to dividends and total return, and we will do what we believe is best for our clients in delivering the strongest return. We will update our clients and the market as we get more clarity.

In conclusion:

We came into this crisis more defensive which benefited the portfolio. The Trust, whilst down in absolute terms, has outperformed the benchmark. Our philosophy is to be style-agnostic, to concentrate on stock specific risk and to ensure we maximise this through building high conviction portfolios. Here at BlackRock we have a significant competitive advantage in stock selection given the immense research platform we sit on, the data and risk tools we have, and the excellent access we receive from companies.  In the month of March, as the crisis unfolded and as 90% of the global workforce began working from home, the UK team have still met with over 210 management teams; seeking to understand the company’s cash balances, the likelihood of breaching debt covenants and the consequences of doing so. We recognise this is a great time of difficulty for our client base. However, this is also a period of enormous opportunity. The next few months will give us great opportunities to buy companies at prices we couldn’t have dreamt of a few months ago and should enable us to deliver stronger total return in the medium and long term.

BlackRock Income & Growth Investment Trust plc aims to provide growth in capital and income over the long term through investment in a diversified portfolio of principally UK listed equities.

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