BlackRock Income and Growth Investment Trust plc (LON:BRIG) has announced its latest portfolio update.
All information is at 31 January 2024 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 | -0.3% | 4.8% | -0.4% | 18.2% | 19.8% | 113.2% |
| Net asset value | -2.5% | 8.0% | 1.8% | 26.0% | 31.8% | 117.2% |
| FTSE All-Share Total Return | -1.3% | 6.2% | 1.9% | 27.5% | 30.4% | 112.2% |
| 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: | 204.92p |
| Net asset value – cum income*: | 210.52p |
| Share price: | 186.50p |
| Total assets (including income): | £47.1m |
| Discount to cum-income NAV: | 11.4% |
| Gearing: | 5.2% |
| Net yield**: | 4.0% |
| Ordinary shares in issue***: | 20,491,536 |
| Gearing range (as a % of net assets): | 0-20% |
| Ongoing charges****: | 1.28% |
| * Includes net revenue of 5.60 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 | 8.7 |
| Pharmaceuticals & Biotechnology | 8.3 |
| Financial Services | 8.2 |
| Oil & Gas Producers | 8.0 |
| Household Goods & Home Construction | 7.8 |
| Media | 6.8 |
| Banks | 6.4 |
| General Retailers | 4.3 |
| Real Estate Investment Trusts | 3.7 |
| Personal Goods | 3.5 |
| Life Insurance | 3.1 |
| Nonlife Insurance | 3.0 |
| Food Producers | 2.7 |
| Health Care Equipment & Services | 2.5 |
| Travel & Leisure | 2.4 |
| Tobacco | 1.7 |
| Electronic & Electrical Equipment | 1.5 |
| Gas, Water & Multiutilities | 1.4 |
| Leisure Goods | 1.1 |
| Industrial Engineering | 0.9 |
| Net Current Assets | 3.8 |
| —– | |
| Total | 100.0 |
| ===== | |
| Country Analysis | Percentage |
| United Kingdom | 92.2 |
| United States | 2.6 |
| Switzerland | 1.5 |
| Net Current Assets | 3.7 |
| —– | |
| 100.0 | |
| ===== | |
| Top 10 holdings | Fund % |
| AstraZeneca | 6.8 |
| Shell | 6.5 |
| Rio Tinto | 5.7 |
| RELX | 5.2 |
| 3i Group | 4.6 |
| Reckitt | 4.5 |
| Phoenix Group | 3.1 |
| Unilever | 2.9 |
| BHP | 2.8 |
| Tate & Lyle | 2.7 |
Commenting on the markets, representing the Investment Manager noted:
Performance Overview:
The portfolio returned -2.5% during the month net of fees, underperforming the FTSE All-Share which returned -1.3%.
Market Summary:
Despite mixed macroeconomic data, global equity markets rallied in January on strong earnings from technology names. The UK equity market lagged and fell on concerns around growth in China, notably, in the commercial real estate market, and a stronger-than-expected inflation reading. The FTSE All Share fell by -1.32% with Basic Materials as the top underperforming sector.
U.S. jobs report showed a tight labour market with a greater-than-expected 216,000 jobs created and strong wage growth in December1. Core US inflation, which excludes food and energy costs, fell slightly to 3.9% in December from 4% in November2. After slowing wage growth, the European Central Bank left rates on hold as widely expected.
Late in the month, strong earnings from chipmakers TSMC and ASML triggered a global equity market rally. While the S&P 500 hit all-time highs during the month, risk assets came under pressure on the last trading date of the month with the S&P 500 down by the most since September, as Fed Chair Powell explicitly stated that a March rate cut was unlikely.
Investors scaled back their expectations of rate cuts from the Bank of England after a surprise increase in UK inflation in December. Consumer prices rose at a rate of 4%, up from 3.8% in November, the first increase in 10 months3. Services inflation, rose to 6.4% in December from 6.3%in November and core inflation was 5.1% in December, unchanged from the previous month3. The FTSE 100 index tumbled on the announcement.
The release of the consumer confidence index in the UK indicated a rise of three points month-on-month to minus 19; the third consecutive month-on-month increase and a two-year high. Notably, consumer expectations of personal finance for the next 12 months were positive for the first time in two years. January’s purchasing manager index reading indicated economic activity rising at the fastest pace in seven months4. In addition, wage growth in the UK slowed to 6.5 % in the three months to November, down from a peak of 8.5% in the summer.5
Contributors to performance:
The top detractor was Watches of Switzerland. The company issued a profit warning in the month which showed a big deceleration in sales in lower/mid-tier watches and jewellery in the UK. In mid-December, the mix of product changed away from watches with precious metals to “steel-only” models. Given gold watches can sell at c.3x the price of steel, the impact on the average-sale-price for the group was significant and was the primary cause of the downgrade.
Rio Tinto and BHP also detracted from performance during the period due to pressure on Chinese commercial real estate given the miners supply steel that goes into the construction industry.
Hays, the staffing company, issued a profit warning following a deceleration in activity in December with net fees falling c.15% in December vs 7-8% in September-November due to weakness in their permanent placements division alongside a muted seasonal pick-up in temporary placements. Hays is now guiding to 1H24 EBITA of £60m vs consensus of £73m and leading to 15-25% cuts for FY24 as this run-rate is then used for FY24. The company has indicated it is accelerating its cost savings program. The shares have been derating for some time in anticipation of this downturn. Hays remains cash generative and operates with a net cash balance sheet which should allow it to emerge in a strong competitive position when the macroeconomic backdrop improves. We continue to own Hays as we see significant long-term value.
US-listed payment-technology corporation, Mastercard, was a top contributor to the relative performance of the portfolio during the month. Shares rallied leading up to the company’s earnings day. On the last day of the month, the payments giant delivered strong earnings and revenue growth for the full year 2023, driven by robust consumer spending, with cross-border volume growth of 24%. RELX shares also rose as the analytics company, which is incorporating AI tools into its products and services, benefitted from the broader rally in technology names.
Changes
During the period, we started a new position in SGS. This is a global testing business with a new and well-regarded CEO. We would expect the new CEO to reinvigorate the organic and inorganic prospects of the organisation which has struggled to organically grow earnings-per-share. We view this as an attractive industry and company which have both struggled with the new CEO as a potential catalyst for a turnaround. The purchase of SGS was funded from the sale of Schneider Electric.
Schneider Electric has been a hugely successful holding for the portfolio since purchase. With the shares up 35% in 2023 and with recent expectations raised again, we felt the risk-reward was now more balanced with better opportunity in SGS from here.
We also purchased a new position in GSK funded from our sale of Roche. Following a significant de-rating, in part due to an overhang on litigation around Zantac, the risk-reward at GSK is far more attractively balanced. Combined with early signs of better R&D productivity, we see a chance for both higher earnings and higher multiples. Against this, and with our discipline of competition for capital, we have sold our position in Roche to fund this. We also sold Woodside Energy given more attractive opportunities elsewhere.
Outlook
Equity markets entered 2024 in a 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, and 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 some emerging markets. 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. 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 deteriorated 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 recent meetings 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 2023, 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 in previous commentaries, 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: Financial Times, 6 January 2024. https://ft.pressreader.com/v99e/20240106/281492166149598
2 Source: Financial Times, 12 January 2024. https://ft.pressreader.com/v99c/20240112/281805698774386
3Source: Financial Times, 17 January 2024. https://www.ft.com/content/42c4bece-abd9-4e02-a403-66f1a29647b4
4Source: Financial Times, 26 January 2024. https://www.ft.com/content/54d6eb7a-e026-4737-9165-49367f84370f
5 Source: Financial Times, 16 January 2024. https://www.ft.com/content/26ec00a1-9cd9-47d0-bfd9-bff68914abb7
For more information on the BlackRock Income and Growth Investment Trust, please visit: www.blackrock.com/uk/brig
