BlackRock Income and Growth Investment Trust NAV returned +3.2% in December

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

All information is at 31 December 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 price-3.7%-5.8%-14.0%-9.0%9.0%74.7%
Net asset value3.2%11.6%-8.2%-1.9%19.0%76.6%
FTSE All-Share Total Return3.9%12.6%-9.8%-2.7%28.5%67.8%
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:187.01p
Net asset value – cum income*:190.44p
Share price:171.50p
Total assets (including income):46.3m
Discount to cum-income NAV:9.9%
Gearing:5.0%
Net yield**:4.2%
Ordinary shares in issue***:22,236,625
Gearing range (as a % of net assets):0-20%
Ongoing charges****:1.1%

* Includes net revenue of 3.43 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 4.2% 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 Services11.7
Support Services7.6
Household Goods & Home Construction7.4
Pharmaceuticals & Biotechnology7.0
Mining6.6
Media6.5
Personal Goods6.0
Banks6.0
Oil & Gas Producers5.7
Tobacco4.3
Travel & Leisure3.5
Life Insurance3.3
General Retailers3.3
Health Care Equipment & Services3.1
Food & Drug Retailers3.0
Nonlife Insurance3.0
Gas, Water & Multiutilities2.1
Industrial Engineering1.6
Electronic & Electrical Equipment1.5
Technology Hardware & Equipment1.1
General Industrials0.9
Real Estate Investment Trusts0.5
Net Current Assets4.3
—–
Total100.0
=====
Country AnalysisPercentage
United Kingdom93.2
United States2.5
Net Current Assets4.3
—–
100.0
=====
Top 10 holdingsFund %
AstraZeneca5.7
RELX4.9
Unilever4.9
Rio Tinto4.7
British American Tobacco4.3
Reckitt Benckiser4.3
Royal Dutch Shell ‘B’3.6
Lloyds Banking Group3.3
Smith & Nephew3.0
Tesco3.0

Commenting on the markets, representing the Investment Manager noted:

Performance Overview:
The Company returned +3.2% during the month, underperforming the FTSE All-Share which returned +3.9%. 

Market Summary:
Global equity markets rose in December as Covid-19 vaccine deployment began globally. Despite positive news around vaccine programmes, virus cases continued to rise and renewed restrictions on activity in Europe (Germany, UK and Netherlands) and the US (California) to slow the spread were implemented. Further travel restrictions in Europe arose on the discovery of a new, more contagious variant of the virus in the UK late in the month.

More pandemic relief stimulus was approved with the EU agreeing on a further budget and stimulus package and US Congress approving a long-delayed pandemic relief stimulus package.

The UK and EU confirmed that a trade deal had been agreed between Britain and the EU covering the free trade of goods; sterling rose against the US dollar on the announcement.

The FTSE All Share Index rose 3.9% during the month with Financials, Basic Materials, and Industrials leading the market, while Health Care underperformed.

Stocks:
The Hut Group was among the top positive contributors to the Company during the month; following its recent IPO, the company beat expectations due to very strong revenue growth. Another positive contributor was Electrocomponents which performed strongly due to better trading and well-received acquisitions. 3i’s underlying portfolio is generally performing well, especially the company’s largest investment, the European discount retailer, Action, that continues to deliver impressive growth.

Defensive holdings such as AstraZeneca and Reckitt Benckiser were among the top detractors from the Company as the market shift towards cyclicals continued into December. Hiscox was another top detractor during the month; after strong performance in November, the company’s shares fell back in December. Phoenix Group also suffered as a result of an index move that affected the share price in the short term.

Portfolio Activity:
Over the month, we purchased a new holding in Integrafin, a technology provider for Independent Financial Advisors (IFAs) whose premium offering is taking market share in addition to the attractive growth in IFAs’ assets under management.  We reduced some of the more defensive holdings in the portfolio, such as United Utilities, to reflect the improving economic backdrop. We also added to BP and Phoenix Group and reduced M&G.

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 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 fall 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’s income reserve provides further resilience to the Company’s dividend outlook.

Outlook:
2021 has begun much as 2020 ended; dominated by politics, rising Covid-19 cases and growing hope that vaccines will end this crisis. Increased Covid-19 cases and new more-transmissible variants are prompting more stringent and longer restrictions throughout the world. This will lead to delays in activity restarting, implying a new round of downward revisions to near-term growth forecasts.  We are watching the risks tied to the Covid-19 mutation that has seen hospitalisations in the UK surpass their spring 2020 peak.  In contrast, hospitalisations and death rates have come down in other parts of Europe and remain below their spring peak. However, on the more positive front, there are a growing number of effective vaccines available and assuming that vaccination programs are indeed successful in 1H21 then the impact of additional near-term lockdowns is unlikely to be material, especially given continued government and central bank support.

Given that economic activity is heavily suppressed by the health response to the virus – as opposed to typical business cycle – a delayed restart could mean a faster recovery once the vaccine is distributed, unleashing pent-up consumer and corporate demand. Until then, policy support remains essential with more needed in Europe. US congress has recently agreed on a $900 billion fiscal package for Covid-19 support, including direct payments to households and an extension to unemployment benefits which is very supportive.  For one of the few times in the past four decades since partisan alliances became stronger, a single party will control all branches of the US government – White House, House and Senate; this will shape the future of US fiscal response. One of the big issues to watch in 2021 is the extent to which inflationary pressures build and the response from central banks, especially in the US with significant implications for market leadership. 

Turning to the UK specifically, we have, finally, got a Brexit deal that provides increased clarity on the UK’s trading relationship with the EU. This is against a backdrop of UK valuations that have been extreme, trading at multi-decade lows versus other international markets with a recent flurry of M&A deals highlighting the dispersion and value on offer in the FTSE.  We continue to believe that this dispersion should narrow given the increased certainty and reduced risk regarding Brexit. 

Finally, we continue to be encouraged by the outlook for UK dividends as a number of companies used this crisis to reset their dividends to more sustainable levels and as regulatory, social and economic pressures ease.  Resilience was a crucial feature of the Company and its underlying holdings in 2020 and while this will still be important in 2021, we are excited by the approaching economic recovery and the opportunity to deliver strong capital and dividend growth for our clients over the long-term.

18 January 2021

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

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