BlackRock Income and Growth Investment Trust returned -1.9% during November, outperforming the FTSE All-Share

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

All information is at 30 November 2021 and unaudited.

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

Performance at month end with net income reinvested

Source: BlackRock

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

At month end

Sterling:

^* Includes net revenue of 4.83 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 3.9% and includes the 2020 final dividend of 4.60p per share declared on 01 February 2021 and paid to shareholders on 17 March 2021 and the 2021 interim dividend of 2.60p per share declared on 23 June 2021 and paid to shareholders on 1 September 2021.

*** 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 2021.

Commenting on the markets, representing the Investment Manager noted:

Performance Overview:

The Company returned -1.9% during the month, outperforming the FTSE All-Share which returned -2.2%.

Global equity markets fell in November on the back of news of a new virus variant which reported a high rate of contagion. The strong end to Q3 corporate reporting season, the passing of the US infrastructure bill and promising news from Pfizer’s COVID-19 pill supported equities through the first half of November. However, fading momentum on the back of rising virus cases in regions such as Germany was exacerbated by the surprise of the Omicron variant. Crude oil prices and government bond yields dropped sharply and travel & leisure holdings suffered after the UK, Germany, Singapore and other countries banned travel from southern Africa where the variant was first identified.

Fed Chair Jerome Powell, after being elected for another term, delivered hawkish messaging in his testimony to the Senate Banking Committee which sent US stocks lower. Chair Powell suggested the strength of the US economic recovery would prompt FOMC members to discuss the possibility of speeding up its tapering plans at their next meeting. He also suggested that the pickup in inflation could no longer be accurately described as “transitory” as evidenced by the jump in the US CPI to its highest reading in 31 years.

Gilts rallied on the back of the Bank of England’s decision to keep rates on hold in November. A tough month for the energy and financials sectors fared poorly for FTSE 100 which had its worst month in a year. The FTSE All Share Index fell -2.2% during November with oil & gas, consumer services and health care as top underperforming sectors while telecommunications, utilities and consumer goods outperformed.

Stocks:

During the period, the portfolio fell in absolute terms after the surprise of the Omicron variant triggered a significant risk sell-off in equity markets. Standard Chartered was the top detractor from the Company’s performance after failing to deliver earnings upgrades in the last statement and being further impacted by weakness in the sector. Travel & leisure companies Whitbread and WH Smith also fell on the back of renewed travel restrictions following the announcement of the new Omicron variant.

On the positive side, the Company outperformed in relative terms, thanks in part to stock selection in the industrials sector where holdings including Electrocomponents, Ferguson and Smiths Group were top contributors as order books grew to record levels during November. RELX continued its strength and was another top contributor to the Company. After a recent teach-in held by RELX we see renewed opportunity in the company’s Legal division which is seeing increased revenue growth after the launch of Lexis+.

One of the Company’s overseas holdings, Schneider Electric, a French leader in energy management and industrial automation, was another top contributor after holding its Capital Markets Day where the company delivered a positive update with management raising growth and margin ambitions for 2022-24. The company is now targeting organic growth for the period of 5-8%, previously 3-6% and margin expansion of 30-70bps.

Portfolio Activity:

During the period, we did not make significant changes to the portfolio as it seems rather early to draw conclusions about the potential market impacts of the Omicron variant. We made modest reductions to cyclicality in the Company by trimming Ferguson and Royal Dutch Shell, however, we continue to run a balanced portfolio where the focus remains on stock-specifics.

Outlook:

Given it is still early days for developments around the Omicron variant, we are closely monitoring the potential ramifications as data becomes more readily available. At present, it has not meaningfully changed our outlook.

As we look ahead to 2022, the backdrop for global equities continues to look positive supported by solid corporate demand and a healthy consumer, notably in developed markets. There are some new challenges in 2022; notably, the retraction of government stimulus and the uncertain changes in consumer behaviour which provide some headwinds. Indeed, the strain on supply chains, caused by strong economic activity overwhelming COVID afflicted capacity and restricted labour availability, will continue to provide inflationary pressures which can squeeze companies’ margins.

We continue to concentrate the Company on those businesses which display pricing power and thus able to protect margins over the medium and long-term. We will monitor the bond market to determine if the current surge in inflation is transitory or, fuelled by a more relaxed Fed, a phenomenon that may persist. We are also cognisant of the evolution of relationships between China and the West and the potential impact on industries and shares. Lastly, much like the structural change of digitisation that arose in the throes of Covid, we monitor the aforementioned change in consumer behaviour amongst other factors for signs of structural changes.

The UK’s relative valuation discount to global equity markets has continued to widen over the course of 2021, despite the resurgence in takeover activity as bidders capitalise on this arbitrage. Specifically, we’ve seen acquisitions of real assets and a desire to find unlevered free cash flow. As we move into 2022, we see cash generation continuing to improve and dividends payments recovering; broadly speaking we’ve been surprised by how quickly dividends have come back with large contributions from the mining sector where the likes of Rio Tinto and BHP have been able to pay large special dividends. While dividends are not far off from pre-Covid levels as the majority of companies are paying dividends once more, we note the large contribution from special dividends that may not persist. That said, as the highest dividend yielding market in the developed world, we see the fundamental valuation of the UK as attractive. We also view the outlook for ordinary dividends for the UK market with optimism as most companies have emerged from the Covid crisis with appropriate dividend policies.

We continue to have conviction in cash-generative companies that have delivered for the Company and we foresee delivering into the future. As always, we are focused on stock-specifics and selecting holdings that are best placed to perform well amidst market normalisation. At present, we feel liquidity conditions are relatively supportive and 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. 

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