REG-BlackRock Income: Portfolio Update

Blackrock Income and Growth Investment TrustAnnouncement

19/07/2022 08:15

The information contained in this release was correct as at 30 June 2022.
Information on the Company’s up to date net asset values can be found on the
London Stock Exchange website at:

https://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html.

BLACKROCK INCOME & GROWTH INVESTMENT TRUST PLC (LEI:5493003YBY59H9EJLJ16)

All information is at 30 June 2022 and unaudited.

Performance at month end with net income reinvested

                               One  Month  Three  Months  One  Year  Three  Years  Five  Years  Since  1 April  2012 
 Sterling                                                                                                            
 Share price                         0.6%          -2.4%       0.4%          2.6%         8.2%                 95.3% 
 Net asset value                    -5.7%          -4.8%       0.3%          6.8%        13.6%                 93.1% 
 FTSE All-Share Total Return        -6.0%          -5.0%       1.6%          7.4%        17.8%                 89.5% 
                                                                                                                     
 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:            192.05p 
 Net asset value – cum income*:             196.16p 
 Share price:                               180.00p 
 Total assets (including income):            £45.5m 
 Discount to cum-income NAV:                   8.2% 
 Gearing:                                      3.1% 
 Net yield**:                                  4.0% 
 Ordinary shares in issue***:            21,171,914 
 Gearing range (as a % of net assets):        0-20% 
 Ongoing charges****:                          1.2% 
 (*)Includes net revenue of 4.11 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 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.   
 **** Calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs for the year ended 31 October 2021. 

   

 Sector Analysis                       Total assets (%) 
 Support Services                                  11.3 
 Pharmaceuticals & Biotechnology                   10.6 
 Oil & Gas Producers                                8.4 
 Household Goods & Home Construction                7.3 
 Media                                              7.1 
 Banks                                              6.0 
 Life Insurance                                     5.7 
 Mining                                             5.2 
 Financial Services                                 4.5 
 Nonlife Insurance                                  3.9 
 Tobacco                                            3.8 
 Health Care Equipment & Services                   2.9 
 Personal Goods                                     2.4 
 Travel & Leisure                                   2.4 
 Food Producers                                     2.2 
 Electronic & Electrical Equipment                  2.2 
 Fixed Line Telecommunications                      1.8 
 General Retailers                                  1.7 
 Gas, Water & Multiutilities                        1.2 
 Industrial Engineering                             1.0 
 Software & Computer Services                       0.9 
 Real Estate Investment Trusts                      0.8 
 Electricity                                        0.7 
 Net Current Assets                                 6.0 
                                                  ----- 
 Total                                            100.0 
                                                  ===== 

   

 Country Analysis           Percentage 
 United Kingdom                   86.2 
 United States                     4.1 
 France                            3.7 
 Net Current Assets                6.0 
                                 ----- 
                                 100.0 
                                 ===== 
 Top 10 holdings                Fund % 
 AstraZeneca                       8.1 
 Shell                             6.8 
 RELX                              4.9 
 Reckitt Benckiser                 4.5 
 Rio Tinto                         3.9 
 British American Tobacco          3.8 
 Phoenix Group                     3.5 
 Standard Chartered                3.1 
 Smith & Nephew                    2.9 
 3i Group                          2.7 

Commenting on the markets, representing the Investment Manager noted:

Performance Overview:

The Company returned 0.6% during the month, outperforming the FTSE All-Share
which returned -6.0%.

Global equity markets fell in June as tightening monetary policy from central
banks and recessionary fears sent shockwaves through markets. The Fed raised
rates by 75bps, the largest hike since 1994, the Bank of England raised rates
a further 25bps to 1.25%, the Swiss National Bank announced a surprise 50bp
hike from -0.75% to -0.25%, and the European Central Bank announced it would
halt asset purchases. Following this, global equity markets experienced the
weakest week since the beginning of the pandemic with a 2.6% fall for the S&P
500 and a -4% decline for the FTSE All-Share index. The declines in June mean
H1 was the worst half-year for the S&P 500 since 1970, the Dow Jones Index
since 1962 and the Nasdaq ever.

The tightening and easing of Covid restrictions in China added to volatility.
The month began with mass testing in Shanghai and Beijing creating negative
sentiment early in the period. This was followed by some relaxation of
restrictions later in the month which provided some relief for risk assets.

Poor activity data and suggestion from Central Banks that a soft landing is
unlikely reinforced global economic slowdown fears. Consequently, the
Materials, Energy, and Consumer Discretionary sectors fell during the month as
commodities prices dropped and consumer confidence waned. Where Financials
initially performed strongly on the back of rising interest rates, the sector
later fell on rising fears of a recession. More defensive sectors including
Health Care performed better and was the only sector with a positive return
during the period.

Stocks:

The Company’s more defensive holdings were relative positive contributors to
performance during the month; these included RELX, Reckitt Benckiser, and Tate
& Lyle. Euroapi was another top positive contributor to relative performance
after its recent spin off from Sanofi to start operating as a standalone
business.

Whilst Rio Tinto was a drag on relative performance, this was offset by not
holding other shares in the Mining sector, notably Anglo American and
Glencore. After rallying earlier in the year, iron ore and copper prices
declined on global economic slowdown fears. 3i was another top detractor from
relative performance; the company’s investment in the discount retailer,
Action accounts for over 50% of the NAV and is valued at a multiple reflecting
the long duration rollout potential across Europe. 3i shares sold off on
market concerns about read-across to Action from consumer weakness seen in the
Walmart/Target profit warnings earlier in the year, coupled with a de-rating
of longer duration growth companies. Smith & Nephew also detracted from
relative performance on concerns growth will be weaker due to volume-based
procurement and lockdowns in China.

Portfolio Activity:

During the month, we added to more defensive names including Unilever and BT
while reducing more cyclical names including Hays. We also reduced our
underweight in HSBC given prevailing interest rates sensitivity and the low
valuation starting point.

We continue to maintain relative balance in the portfolio abstaining from
taking a bias towards any style or factor, allowing us flexibility in these
uncertain market conditions.

Outlook

The headwinds facing global equity markets have grown steadily over the first
half of 2022. Inflation has surprised in its depth and breadth so far, driven
by ongoing COVID related disruption, the war in Ukraine, rising labour costs
and the persistence of these factors. Central banks and governments are
tightening monetary and fiscal policy as interest rates rise and stimulus is
withdrawn. The subsequent rise in the risk-free or discount rate has many
consequences, not least the pressure on valuation frameworks and, notably, on
un-profitable or extremely 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 likely pushing inflation
higher for longer. We are conscious of the impact this will likely have 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 during the first half. We also see the potential for longer-term
inflationary pressure from decarbonisation and deglobalisation. It is
difficult to have a high degree of confidence in how these evolve but we
believe there is rising risk of a policy mistake as central banks attempt to
curb inflation; too late to tighten and/or tightening too hard. We expect
this, and the geopolitical ramifications of the Ukraine war, to be the
prevailing debate of 2022 and beyond.

Although demand remains strong at present, the outlook for corporate revenue
and earnings growth is likely to worsen over the course of 2022 as the
pressure on real incomes raises the spectre once again of stagflation. A
notable feature of our conversations with a wide range of corporates in 2021
was the ease with which they were able to pass on cost increases and protect
or even expand margins. We believe that when the transitory inflationary
pressures start to fade (e.g. commodity prices, supply chain disruption) then
pricing conversations will become more challenging. We are also increasingly
focused on wage inflation which may be more persistent and yet, in our
experience, harder to pass on. Corporates have already pointed to wages
picking up, the introduction of bonuses and growing pressure on employee
retention rates as competition for labour intensifies. We therefore believe
that employee retention will be an important differentiator in 2022 given the
productivity benefits of a stable workforce as labour market tighten further.

The FTSE 100, with a majority of international weighted revenues, high
commodity weighting and low starting valuation, has proven to be a port in the
storm, as one of the best performing developed markets during the first half.
The FTSE 250, with its higher domestic focus and lower liquidity has suffered
given the weakness in the domestic economy. We would expect the FTSE 100 to
continue to be advantaged until we see a stabilisation in the domestic economy
and subsequent strengthening of sterling or, more likely, a weakening of the
dollar. Whilst we anticipate further volatility ahead as earnings estimates
moderate, we know that in the course of time, risk appetites will return. We
are currently spending time identifying our ‘wish list’ of opportunities
utilising our flexible approach, experience and strong absolute valuation
framework.

As a reminder, we continue to concentrate the portfolio on businesses with
pricing power and durable, competitive advantages as we see these as best
placed to protect margins and returns over the medium and long-term. Further,
we continue to have conviction in cash generative companies with exceptional
management teams and underappreciated growth potential. At present, whilst we
are excited by the attractive stock-specific opportunities on offer, we
continue to approach the year with balance in the portfolio.

19 July 2022



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