BlackRock Income & Growth Investment Trust: Why the UK Market Deserves a Second Look

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Why invest in the UK?

The UK is often seen as a dull, low-growth market. This view needs to be challenged, says David Goldman, fund manager on the BlackRock Income & Growth Investment Trust (LON:BRIG).

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The UK stock market has been unloved. Global asset allocators have significantly reduced their weightings in recent years and the UK All Companies and Equity Income sectors continue to shed assets. The combination of a weak economy, political turmoil and structural factors have pushed sentiment lower. But the reality for UK companies is far more positive than this gloomy picture might suggest.

Since June 2016, UK equity income funds have seen £33 billion in outflows, while UK large-cap equity funds have seen £18 billion in outflows, according to Morningstar, equivalent to 60% and 23% of starting assets respectively.[1] This has continued even amid an improvement in the UK’s economic fortunes since the start of the year.

The reasons for this weakness are myriad: there have been a number of structural reasons. There has been a move away from UK funds towards global funds, so UK sectors have shrunk as a share of the overall fund universe.[2] UK pension funds have dramatically cut their exposure to their home market over the past 25 years,[3] withdrawing a vast £400bn from the market.  

The UK has also seen political upheaval in the wake of the Brexit vote and its economic performance has been poor. Even though UK companies draw their revenues from around the world, it has knocked sentiment towards the UK market and pushed international investors to look elsewhere. The UK is often seen as a dull market, full of boring companies in old economy sectors such as mining and energy.  

We believe this perception needs to be challenged. In reality, many UK companies are plugged into strong growth markets. The UK’s consumer goods companies draw their income from across the world, including exciting, fast-growing emerging markets. The FTSE All Share has companies in faster-growing sectors such as media and technology sector, alongside areas such as banking. Investors are not condemned to hold a portfolio of old economy stocks just because they are investing in the UK market.

Dividends

Dividends are another important factor for UK companies. UK companies paid out £94.3bn in dividends in 2022, a rise of 8% on the previous year. Underlying payouts, which strip out special dividends, saw an even stronger rise.[4] Dividends have risen steadily since the pandemic and we find plenty of companies paying strong and rising dividends to shareholders, without compromising investment in their businesses.

As it stands the aggregate valuation of the UK market is lower than its peers. The MSCI United Kingdom is trading at a price to earnings ratio of 11.8x, compared to 20.3x for the MSCI World.[5] Price to earnings ratios are a measure of a company’s valuation relative to its earnings.

Sentiment

Sentiment remains a significant hurdle for the UK market. Investors have fallen out of love with UK companies and the region continues to see outflows.[6] It can take investors a long time to change their mind about a particular area. It is possible that the UK will remain out of favour even now some of the political headwinds have receded and the economy does not look as vulnerable.

Nevertheless, even if investor sentiment doesn’t improve, corporate interest may provide a boost. International private equity buyers are taking an increasing interest in UK firms, with bids for groups such as John Wood Group, Network International and THG (formerly The Hut Group).[7]

The UK is a more interesting and diverse market than it is given credit for. It is not just about mining and energy. In reality, UK companies are involved in some of the world’s strongest growth trends. Investors just have to look a little bit deeper to find pockets of strength.

For more information on how to access the opportunities presented by the income and growth sector, please visit: www.blackrock.com/uk/brig

BlackRock Income and Growth Investment Trust aims to provide growth in capital and income over the long term through investment in a diversified portfolio of principally UK listed equities.

Liquidity Risk: The Fund’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Important Information

In the UK this is issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

This document is marketing material. The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

The investment trusts listed in this document currently conduct their affairs so that their securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to nonmainstream investment products and intend to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are securities issued by investment trusts. Investors should understand all characteristics of the funds objective before investing. For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in local language in registered jurisdictions.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2023 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.


Sources:

  1. Morningstar – 16/05/23
  2. The Investment Association – 01-06/23
  3. Bloomberg – 17/03/23
  4. LinkGroup – 17/08/23
  5. MSCI -17/08/23
  6. The Investment Association – 06/07/23
  7. The Guardian – 17/04/23

Risk Warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Trust Specific Risks

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

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