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Black Rock investment trust

Blackrock Income and Growth Investment Trust outperforms the FTSE All-Share in August

Blackrock Income and Growth Investment Trust plc (LON:BRIG) has provided the following portfolio update:

All information is at 31 August 2020 and unaudited.

Performance at month end with net income reinvested

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

One
Month
Three
Months
One
Year
Three
Years
Five
Years
Since
1 April
2012
Sterling
Share price7.5%3.1%-12.0%-7.8%10.3%67.6%
Net asset value2.5%-0.2%-10.7%-7.1%11.7%59.3%
FTSE All-Share Total Return2.4%0.3%-12.6%-8.2%17.3%51.6%

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:169.27p
Net asset value – cum income*:171.78p
Share price:164.50p
Total assets (including income):42.7m
Premium to cum-income NAV:4.2%
Gearing:3.8%
Net yield**:4.4%
Ordinary shares in issue***:22,525,600
Gearing range (as a % of net assets):0-20%
Ongoing charges****:1.1%

* Includes net revenue of 2.51 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 4.4% and includes the 2019 final dividend of 4.60p per share declared on 24 December 2019 and paid to shareholders on 19 March 2020 and the 2020 interim dividend of 2.60p per share declared on 24 June 2020 and to be paid to shareholders on 1 September 2020.

*** excludes 10,093,332 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 2019.

Sector AnalysisTotal assets (%)
Financial Services8.7
Pharmaceuticals & Biotechnology8.5
Household Goods & Home Construction7.9
Mining6.9
Support Services6.9
Media6.7
Personal Goods6.7
General Retailers4.7
Banks4.6
Gas, Water & Multiutilities4.5
Tobacco4.4
Oil & Gas Producers4.2
Travel & Leisure3.3
Food & Drug Retailers3.1
Health Care Equipment & Services2.9
Nonlife Insurance2.7
Life Insurance2.2
Electronic & Electrical Equipment1.4
Industrial Engineering1.1
Mobile Telecommunications0.9
Technology Hardware & Equipment0.6
Real Estate Investment Trusts0.5
Construction & Materials0.4
Beverages0.3
Net Current Assets5.9
—–
Total100.0
=====
Country AnalysisPercentage
United Kingdom92.4
United States1.7
Net Current Assets5.9
—–
100.0
=====
Top 10 holdingsFund %
AstraZeneca7.0
Unilever5.4
RELX5.1
Reckitt Benckiser5.1
BHP5.0
British American Tobacco4.4
Tesco3.1
Smith & Nephew2.9
Next2.8
Standard Chartered2.5

Commenting on the markets, Adam Avigdori and David Goldman representing the Investment Manager noted:

Performance Overview:

The Company returned 2.5% during the month, outperforming the FTSE All-Share which returned 2.4%. 

Market Summary:

Global equities continued to push higher in August with the MSCI ACWI up 6.1% in USD terms. Risk sentiment was improved with expectations for more US fiscal stimulus and US and China reaffirming their commitment to the phase one trade deal. Higher hopes for a COVID-19 vaccine also contributed positively as Russia became the first country to approve a vaccine.

The flare-up of virus cases in Europe during the month caused some re-imposed restrictions in Spain, Italy, Ireland and Greece. In the US, the virus spread slowed but remained elevated in the big Sun Belt states, however, hospitalisations started to come down.

Despite the ongoing virus headwinds, economies made considerable progress in recovering from the activity hole that lockdown measures created; about 60% of the activity shut during the shock has restarted since April.

During August, the dollar dropped to levels last seen in May 2018. Ahead of the September FOMC meeting, the Federal Reserve announced a new strategy framework, embracing a strategy of flexible average inflation targeting. With the upcoming presidential election, Joe Biden announced Kamala Harris as his running mate to represent the Democratic party.

In the UK, encouraging signs for the retail sector emerged with the improvement of weekly footfall readings. Adversely, the accelerated pace of job cuts points to continued uncertainty in the labour market.  With the furlough scheme ending in October this could significantly impact the UK’s unemployment rate.

The FTSE All Share rose 2.4% during August with Consumer Services, Technology, and Industrials as top outperforming sectors and Utilities, Health Care and Telecommunications as top underperformers.

Stocks:

Stock selection in consumer goods contributed to performance. Being underweight and stock selection within financials also contributed. Overweight exposure to the utilities sector detracted from performance. Stock selection to healthcare also detracted.

Contributors to performance included not owning Diageo. Shares fell in the period after the company reported in the period, showing that they have suffered disruption to their distribution channels, and that the brand will continue to struggle by about 20-30% as restaurants and bars remain shut. Grafton Group also contributed. The company delivered strong 1H 20 results. Profit and cash generation were more resilient in the first half than expected and the improvement in trading has continued so far in the second half, giving management the confidence to guide to flat profits for the second half of 2020, leading to significant upgrades for the FY 2020.

Serco was the top detractor. Shares fell after releasing a cautious outlook and expressing uncertainty about the sustainability of some of their Covid-related contracts e.g. contact tracing. United Utilities also detracted as utilities lagged the market rally.

Portfolio Activity:

We purchased Maxim Integrated Products which is being acquired by Analog Devices. The combination will be a market-leading provider of analog chips with exposure to a range of attractive themes including industrial automation, 5G telecom infrastructure, electrification and increased automation in autos and data centre infrastructure. This should provide long term organic growth with higher drop-through to profits and cash flow. We sold Informa and switched the proceeds into RELX where we see better medium-term opportunity to participate in exhibitions recovery, alongside the long-term structural growth drivers RELX has with regards its information services business. We added to holdings in United Utilities, John Laing Group and British American Tobacco. We reduced Direct Line, Phoenix Group and Vodafone.

On Dividends:

At the time of writing, around £40 billion dividends have been cut or suspended in the UK market.  As lockdowns have been eased, companies have been increasingly able to assess and quantify the damage caused by Covid-19 with improved visibility around their ongoing cash generation as well as the state of their balance sheets.  For some, this has given their boards the confidence to reinstate dividends, often mindful of also returning any government support received.  However, there will also be a permanent cut to UK dividends; a function of companies that were over-distributing before this crisis, such as the oil and gas sector, and those, such as in the travel sector, where the Covid-19 impact has been particularly large and where significant uncertainty remains.  While there is still significant uncertainty around the proportion of temporary and permanent cuts, we currently expect a fairly even split between the two.  We would reiterate that we have typically not owned or been underweight those companies where we expect the cuts to be permanent and we will continue to take a long-term approach to dividends and manage the portfolio for the strongest total return.

Outlook:

The scale of the economic impact of the COVID crisis, the associated lockdown and central bank intervention became more evident during Q2. As referenced during our Q1 outlook, the hit to nominal demand and GDP was the highest on record. Q1 UK consumption was the weakest since 1979 at -2.9%, before falling very sharply by an estimated 23.1% in Q2. Government support also broke records, far outweighing anything seen during the financial crisis. In the UK, government borrowing is currently predicted to be £315bn for 2020/21 which represents almost 16% of GDP. This is almost double the amount (8.7%) of government borrowing in 2008/2009 and by far and away the largest in modern peacetime. Globally, more than $6 trillion has been pledged so far in support by central banks looking to limit the economic impact from the virus. This has supported risk assets globally, with a notable rise in markets from the bottom during the last six weeks of the quarter. Equity and debt markets have also been busy. In the UK, we have seen an extraordinary wave of issuance as companies have sought to improve liquidity through the crisis.

While significant uncertainty remains, activity has started to improve as government restrictions have been eased.  We are entering a crucial period of normalisation with schools reopening and government support fading and companies trying to gauge the underlying demand for their products and services.  The picture does however remain mixed with significant growth in Housing Repair and Maintenance spend and rising house prices as well as rising unemployment and the banking sector bracing itself for a significant increase in impairments.  We continue to tread cautiously; balancing the significant long-term opportunity we see with a wide range of short-term scenarios and factors. Amongst these are clearly the risk of widespread unemployment, the changes to both consumer and business behaviour with regards to which products and services they consume and how they consume them in addition to the potential for inflation to pick up.  The combination of newsflow around vaccines and treatments and use of rolling lockdowns provides encouragement that the threat from Covid-19 should reduce over time.  The focus is on gauging the damage Covid-19 has caused and will continue to cause as well as the speed of economic recovery and identifying those companies where the outlook has been structurally altered by this crisis.

In conclusion, we came into this crisis more defensively positioned which benefited the portfolio and leaves us in a strong position to take advantage of the dislocation. In times like these, the scale and breath of the platform at BlackRock allows us to leverage significant resources across stock analytics, market insights and data science. We know, from our experience in 2008/2009, how important these resources and support are and the opportunities it enables you to find. In the weeks and months ahead, we will continue to utilise these resources and our previous experiences in uncertain markets to continue to build on the promising start to the year to ensure the Company emerges from this period of volatility well placed to deliver strong capital and dividend growth over the long term.

Finally, beyond markets and investments, we also recognise that this has been an extremely tough period for many. We have been encouraged by the support companies in the portfolio have provided their employees and communities and continue to support these initiatives.

17 September 2020

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

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.