BlackRock Income and Growth Investment Trust performed in-line with the FTSE All-Share

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

All information is at 31 December 2022 and unaudited.

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

Performance at month end with net income reinvested

BlackRock took over the investment management of the Company with effect from 1 April 2012.

At month end

Sterling:

^* Includes net revenue of 5.86 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 3.8% and includes the 2021 final dividend of 4.60p per share declared on 13 January 2022 and paid to shareholders on 17 March 2022, and the 2022 interim dividend of 2.60p per share declared on 22 June 2022 with pay date 1 September 2022.

*** 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 2021.

Commenting on the markets, representing the Investment Manager noted:

Performance Overview:

The Company returned -1.39% during the month, performing in-line with the FTSE All-Share which returned -1.42%.

Global equity markets fell in December, the FTSE All Share Index was dragged down by a weaker oil price.

Labour shortages continued to put upward pressures on wages in the US which led to markets pricing in higher interest rates in 2023. This was reflected in the US yield curve, which inverted even more deeply to the most since the 1980s. The Federal Reserve hiked interest rates by 50 bps¹ and struck a hawkish stance as it laid out a higher peak rate than market pricing and a lack of rate cuts in 2023.

In the UK, the Bank of England hiked interest rates by 50 bps to 3.5%². The European Central Bank also hiked interest rates by 50 bps to 2%³ and pushed back against dovish market pricing of the path ahead. The ECB noted much more progress was needed on inflation as core inflation was seen staying sticky at a 5% annual rate, well above the ECB’s target.

In China, the government announced wide-ranging relaxations to the zero-covid policy and signalled a shift in focus from battling Covid-19 to stabilising the economy. Whilst bulls are encouraged by the likely rebound in demand this should have as China reopens, it has simultaneously led to concerns that surging infections will lead to temporary labour shortages and further supply chain disruptions.

Further east, the Bank of Japan caught markets off-guard with an unexpected tweak to its yield curve control policy to allow the yield on the 10-year Japanese government bond to move 50 bps either side of its 0% target⁴. 

The FTSE All Share fell -1.42% during the month with Telecommunications, Technology and Oil & Gas as top underperforming sectors while Health Care was the only sector that outperformed.

Stocks:
Hiscox released a statement indicating all divisions were trading in-line with expectations confirming the continued improvement in the group’s operational performance including the anticipated acceleration in US Retail. The company remains disciplined in a still hardening rate environment such that pricing is running ahead of claims inflation and losses are well controlled.

Games Workshop, a recent addition to the portfolio, performed strongly in December on the back of the announcement that the company formed an agreement in principle with Amazon to develop film/TV projects with the Warhammer franchise.  Phoenix had a capital markets day in December at which it was indicated that the company’s cash generation would be at the top of guidance range for 2022 in addition to pointing to medium term growth. It was also confirmed that the company was not impacted by the LDI crisis.

Moonpig’s recent performance has been impacted by Royal Mail strikes, notably, impairing consumer confidence that cards will be delivered on time, therefore, having an impact on card purchases online.  Euroapi cut 2022 EBITDA expectations due to an issue with documentation in their Budapest site. Watches of Switzerland; another recent addition to the portfolio, has seen share price volatility in recent months, however, the shares are well positioned to benefit from China reopening.

Changes:
There were limited changes during the month; we added to Howden Joinery and Games Workshop.

Outlook:
As we look ahead into 2023, the headwinds facing global equity markets are evident. Inflation has consistently surprised in its depth and breadth, driven by the resilient demand, supply chain constraints, and most importantly by rising wages in more recent data. Central banks across the developed world continue to unwind ten years of excess liquidity by tightening monetary policy desperate to prevent the entrenchment of higher inflation expectations. Meanwhile, the risk of policy error from central banks or politicians remains high as evidenced by the turmoil created by the ‘mini-budget’ in the UK that sent gilts spiralling. The cost and availability of credit has changed and strengthens our belief in investing in companies with robust balance sheets capable of funding their own growth. The rise in the risk-free or discount rate also challenges valuation frameworks especially for long duration, high growth or highly valued businesses. We are mindful of this and feel it is incredibly important to focus on companies with strong, competitive positions, at attractive valuations that can deliver in this environment.

The political and economic impact of the war in Ukraine has been significant in uniting Europe and its allies, whilst exacerbating the demand/supply imbalance in the oil and soft commodity markets. We are conscious of the impact this has on the cost of energy, and we continue to expect divergent regional monetary approaches with the US being somewhat more insulated from the impact of the conflict, than for example, Europe. Complicating this further, is the continued impact COVID is having on certain parts of the world, notably China, which has used lockdowns to control the spread of the virus impacting economic activity. We also see the potential for longer-term inflationary pressure from decarbonisation and deglobalisation, the latter as geopolitical tensions rise more broadly across the world.

As we enter 2023, we have seen the first signs of demand weakness, notably in areas of consumer spending impacted by rising interest rates such as demand for new housing.  We would expect broader demand weakness as we enter 2023 although the ‘scars’ of supply chain disruption are likely to support parts of industrial capex demand as companies seek to enhance the resilience of their supply chains. A notable feature of our conversations with a wide range of corporates has been the ease with which they have been able to pass on cost increases and protect or even expand margins during 2022 as evidenced by US corporate margins reaching 70-year highs. We believe that as demand weakens and as the transitory inflationary pressures start to fade during 2023 (e.g. commodity prices, supply chain disruption) then pricing conversations will become more challenging despite pressure from wage inflation which may prove more persistent. While this does not bode well for margins in aggregate, we believe that 2023 will see greater differentiation as corporates’ pricing power will come under intense scrutiny.

The UK’s policy has somewhat diverged from the G7 in fiscal policy terms as the present government attempts to create stability after the severe reaction from the “mini-budget”. The early signs of stability are welcome as financial market liquidity has increased and the outlook, whilst challenged, has improved. Although the UK stock market retains a majority of internationally weighted revenues, the domestic facing companies have continued to be impacted by this backdrop, notably financials, housebuilders and property companies. The valuation of the UK market remains highly supportive as currency weakness supports international earnings, whilst domestic earners are in many cases at COVID or Brexit lows in share price or valuation terms. Although we anticipate further volatility ahead as earnings estimates moderate, we know that in the course of time, risk appetites will return and opportunities are emerging.

We continue to focus the portfolio on cash generative businesses with durable, competitive advantages boasting strong leadership as we believe these companies are best-placed to drive returns over the long-term.  We anticipate economic and market volatility will persist in 2023 and we are excited by the opportunities this will likely create by identifying those companies using this cycle to strengthen their long-term prospects as well as attractive turnarounds situations.

¹Source: Financial Times, December 2022 link: https://www.ft.com/content/b2e1baae-60b3-4719-98ba-e932acb5a285
²Source: Financial Times, December 2022 link: https://www.ft.com/content/f8c52506-f76b-4bb0-99fa-c92ae83236e5
³Source: Financial Times, December 2022 link: https://www.ft.com/content/c76d26a3-b103-49a3-92fe-ff50f8c9ac72
⁴Source: Financial Times, December 2022 link: https://www.ft.com/content/c0efa373-062e-4312-916a-b9e86196cae1

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