BlackRock Income and Growth Investment Trust plc (LON:BRIG) has announced its latest portfolio update.
All information is at 31 December 2023 and unaudited.
For more information on the BlackRock Income and Growth Investment Trust, please visit: www.blackrock.com/uk/brig
Performance at month end with net income reinvested
| OneMonth | ThreeMonths | OneYear | ThreeYears | FiveYears | Since1 April2012 | |
| Sterling | ||||||
| Share price | 2.7% | 2.5% | 1.7% | 22.4% | 28.3% | 113.8% |
| Net asset value | 5.2% | 4.3% | 10.1% | 26.2% | 40.9% | 122.9% |
| FTSE All-Share Total Return | 4.5% | 3.2% | 7.9% | 28.1% | 37.7% | 115.0% |
| 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: | 210.57p |
| Net asset value – cum income*: | 216.02p |
| Share price: | 187.00p |
| Total assets (including income): | £48.3m |
| Discount to cum-income NAV: | 13.4% |
| Gearing: | 5.9% |
| Net yield**: | 4.0% |
| Ordinary shares in issue***: | 20,521,536 |
| Gearing range (as a % of net assets): | 0-20% |
| Ongoing charges****: | 1.28% |
| * Includes net revenue of 5.45 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 4.0% and includes the 2023 Interim Dividend of 2.60p per share declared on 21 June 2023 with pay date 1 September 2023, and the 2023 final dividend of 4.80p per share declared on 21 December 2023 with pay date 15 March 2024. | |
| *** excludes 10,081,532 shares held in treasury. | |
| **** The Company’s ongoing charges are calculated as a percentage of average daily net assets and using management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items for the year ended 31 October 2023. | |
| Sector Analysis | Total assets (%) |
| Support Services | 10.2 |
| Mining | 9.0 |
| Oil & Gas Producers | 8.6 |
| Pharmaceuticals & Biotechnology | 8.6 |
| Financial Services | 7.9 |
| Household Goods & Home Construction | 7.2 |
| Banks | 6.5 |
| Media | 6.3 |
| General Retailers | 4.2 |
| Personal Goods | 3.8 |
| Real Estate Investment Trusts | 3.6 |
| Life Insurance | 3.2 |
| Nonlife Insurance | 3.0 |
| Food Producers | 2.8 |
| Electronic & Electrical Equipment | 2.8 |
| Health Care Equipment & Services | 2.3 |
| Travel & Leisure | 2.3 |
| Tobacco | 1.6 |
| Gas, Water & Multiutilities | 1.3 |
| Industrial Engineering | 1.0 |
| Leisure Goods | 0.9 |
| Net Current Assets | 2.9 |
| —– | |
| Total | 100.0 |
| ===== | |
| Country Analysis | Percentage |
| United Kingdom | 91.5 |
| United States | 2.4 |
| Switzerland | 1.9 |
| France | 1.3 |
| Net Current Assets | 2.9 |
| —– | |
| 100.0 | |
| ===== | |
| Top 10 holdings | Fund % |
| AstraZeneca | 6.7 |
| Shell | 6.6 |
| Rio Tinto | 5.9 |
| RELX | 4.8 |
| 3i Group | 4.4 |
| Reckitt | 4.1 |
| Phoenix Group | 3.2 |
| BHP | 3.1 |
| Unilever | 2.8 |
| Hays | 2.8 |
Commenting on the markets, representing the Investment Manager noted:
Performance Overview:
The portfolio returned 5.2% during the month net of fees, outperforming the FTSE All-Share which returned 4.5%.
Market Summary:
The month of December proved to be a strong close for the year for equities globally. Continued falls in inflation drove expectations of central bank pivots in 2024. This has resulted in a further decline in the US 10-year treasury rate from 4.95% to 3.88%1 in one month, and a broad rally for equity markets.
In the US, the S&P 500 Index hit its highest level in almost two years after the Federal Reserve (Fed), in its last meeting of the year, indicated its willingness to cut interest rates in 2024. Although the US payrolls data in November painted a picture of a labour market gradually cooling, wage growth was still too high to be consistent with inflation falling back to the Fed’s 2% policy target and the unemployment rate ticked lower. In addition, though the US Consumer Price Index (CPI) for November largely matched expectations, it showed that core services inflation was proving to be sticky.
The European Central Bank (ECB) and the Bank of England (BOE) signalled that interest rate cuts remained some way off. In Europe, policymakers stuck to the script of policy being set at sufficiently restrictive levels for as long as necessary.
In the UK, inflation fell to a two-year low of 3.9%2, markets predicted BOE interest rate cuts in 2024. The FTSE All Share rose 4.52% during the month with Financials, Industrials and Consumer Services as top performing sectors.
Contributors to performance:
December was a strong month of returns as markets reacted favourably to the assumption that rates have peaked which resulted in a rotation into cyclicals, therefore, the portfolio’s exposure to Financials and Basic Materials performed well. This included insurer, Phoenix and asset manager, Ashmore along with miners, BHP and Rio Tinto. Conversely, utility company, Centrica was a top detractor from relative performance during the period as the share price reversed post previous strength.
Private equity and venture capital company, 3i was a top positive contributor to performance during the period. The company has been a remarkable performer over the year and continued to make further progress in the fourth quarter as the performance of Action, its largest asset, continued to impress: like-for-like sales for the first nine months of the year grew by over 19%, driven primarily by footfall, as it continued to extend its pricing advantage over its competitors; the self-funded store roll-out programme has contributed a further 10% to growth.
Games Workshop, British manufacturer of miniatures and related content, released Q2 results that were in-line, however, the market was hoping for upgrades and for more detail on its licensing discussions with Amazon. The company has since made progress with Amazon contract albeit the partnership is still very early stage.
Changes
During the period, we reduced positions in Schneider Electric, 3i, Next and RELX after share price strength and we added to Hays, Tate & Lyle and WH Smith. While WH Smith retains its UK high-street business, the emphasis in recent years has shifted to its fast-growing travel business, notably, in airports where the company has had good traction in US and Europe; we believe this pipeline continues to look strong and attractive.
Outlook
Equity markets entered 2024 in buoyant mood following a strong and broad rally in the latter part of 2023. The outlook, and optimism, is a far cry from 12 months ago, when supply chains were hugely disrupted, inflation was double digit and well ahead of central banks’ targets prompting rapid and substantial interest rates hikes despite an uncertain demand environment. Despite this, equities had one of their best years on record, outperforming bonds with double digit increases, in dollar terms, across most of the developed world and indeed, some emerging markets as well. In the US, the Nasdaq was the standout rising 54% driven by the largest seven companies that rebounded strongly (+c.70%) after a poor 2022, when they had fallen 39% as a group. The FTSE All Share returned 7.9% in 2023. Interestingly, over and two year period of 2022 and 2023, both the UK and US arrived at a similar place having returned 9% and 3% respectively despite very different journeys. China was the surprise negative in 2023, with no noticeable COVID re-opening recovery and lacklustre growth despite government attempts to stimulate.
As we enter 2024, markets have shifted to `goldilocks’ territory whereby slowing inflation has signalled the peak for interest rates while broad macroeconomic indicators that have been weak are not expected to deteriorate further. This is also helpful for the cost and availability of credit which has been recently improving having been deteriorating through most of 2023. During December, bond markets had begun to price in 130bps of easing in the US and a not dissimilar amount in the UK and Europe. Whilst not unrealistic, we believe that this quantum of cuts may prove overly aggressive without a significant deterioration in the economy. Notably, the BoE remains staunchly hawkish as their December meeting showed. Labour markets remain resilient for now with low levels of unemployment while real wage growth is supportive of consumer demand albeit presenting a challenge to corporate profit margins.
Notably in 2024, geopolitics will play a more significant role in asset markets. This year will see the biggest election year in history with more than 60 countries representing over half of the world’s population; c.4 billion people, going to the polls. While most, such as the UK’s are unlikely to have globally significant economic or geopolitical ramifications, others, such as the Taiwanese elections on the 13th January or the US elections in November could have a material impact. We believe political certainty may be helpful for the UK and address the UK’s elevated risk premium that has persisted since the damaging Autumn budget of 2022. Whilst we do not position the portfolios for any particular election outcome, we are mindful of the potential volatility and the opportunities that may result.
As we have commented several times before, the UK stock market continues to remain depressed in valuation terms relative to other developed markets offering double-digit discounts across a range of valuation metrics. This valuation `anomaly’ saw further reactions from UK corporates with the buyback yield of the UK, at the end of the period, standing at a respectable c.2.5%. Combining this with a dividend yield of c.4%, the cash return of the UK market is attractive in absolute terms and comfortably higher than other developed markets. Although we anticipate further volatility ahead as earnings estimates moderate, we know that in the course of time, risk appetite will return, and opportunities are emerging. As we have stated above, we have identified a number of opportunities with new positions initiated throughout the year in both UK domestic and midcap companies.
We continue to focus the portfolio on cash generative businesses with durable, competitive advantages as we believe these companies are best placed to drive returns over the long-term. Whilst we anticipate economic and market volatility will persist throughout the year, we are excited by the opportunities this will likely create, by identifying the companies that strengthen their long-term prospects as well as attractive turnarounds situations.
1Source: Bloomberg, December 2023. https://www.bloomberg.com/markets/rates-bonds/government-bonds/us
2Source: Financial Times, December 2023. https://www.ft.com/content/b27ae951-df80-41eb-8058-f8313ce8648e
For more information on the BlackRock Income and Growth Investment Trust, please visit: www.blackrock.com/uk/brig
