BlackRock Income and Growth Investment Trust Plc - Portfolio Update
London, February 14
|BLACKROCK INCOME AND GROWTH INVESTMENT TRUST PLC (LEI:5493003YBY59H9EJLJ16)|
|All information is at 31 January 2019 and unaudited.|
|Performance at month end with net income reinvested|
|Net asset value||4.2%||-1.7%||-6.1%||15.6%||35.5%||64.8%|
|FTSE All-Share Total Return||4.2%||-1.4%||-3.8%||28.5%||31.2%||62.7%|
|BlackRock took over the investment management of the Company with effect from 1 April 2012.|
|At month end|
|Net asset value - capital only:||185.65p|
|Net asset value - cum income*:||190.90p|
|Total assets (including income):||£49.8m|
|Discount to cum-income NAV:||1.5%|
|Ordinary shares in issue***:||24,004,668|
|Gearing range (as a % of net assets)||0-20%|
|* includes net revenue of 5.25 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 3.7% and includes the 2018 final dividend of 4.40p per share declared on 20 December 2018 and to be paid to shareholders on 19 March 2019 and the 2018 interim dividend of 2.50p per share declared on 25 June 2018 and paid to shareholders on 3 September 2018.|
|*** excludes 8,929,264 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 2018.|
|Sector Analysis||Total assets (%)|
|Oil & Gas Producers||11.2|
|Pharmaceuticals & Biotechnology||7.4|
|Household Goods & Home Construction||5.6|
|Food & Drug Retailers||3.8|
|Travel & Leisure||3.8|
|Gas, Water & Multiutilities||2.6|
|Electronic & Electrical Equipment||1.0|
|Construction & Materials||0.9|
|Software & Computer Services||0.3|
|Net Current Assets||5.7|
|Ten Largest Equity Investments|
|Company||Total assets (%)|
|Royal Dutch Shell 'B'||6.5|
|Lloyds Banking Group||3.8|
|Commenting on the markets, Adam Avigdori and David Goldman representing the Investment Manager noted:|
|UK equities made a positive start to 2019, rebounding from the market turmoil witnessed in the fourth quarter of 2018. The FTSE All-Share returned 4.2% in January, marking the best start to the year since 2013. Global economic data remained fragile. China's Q4 GDP growth of 6.4% is the lowest level since 2009, and Eurozone activity continued to slow, however remains in expansionary territory. Equity markets globally, however, shrugged off the lacklustre economic data. In the US, the tone from the Federal Open Market Committee has become increasingly dovish, recognising the increasing global sensitivities and, after 35 days, the US Government shutdown came to an end. Decelerating growth in China is being carefully managed through a combination of both monetary and fiscal policy, with the central bank cutting reserve requirements to sure up lending and growth. Meanwhile, US/China trade talks have shown signs of a more constructive approach from both sides. Politics were once again front and centre in the UK, first with MPs rejecting the Prime Minister's Brexit deal by a much larger margin than expected, and then with Teresa May surviving the subsequent vote of no confidence. MPs later passed the Brady amendment, giving the Prime Minister a mandate to continue negotiations on the withdrawal agreement. Defensive sectors such as telecommunications and pharmaceuticals underperformed, which resulted in large-caps trailing small and mid-caps during the month.|
Over the month the Company delivered a return of 4.2%, performing in line with the FTSE All-Share which also delivered a return of 4.2%.
Tesco was the best performing of the "Big-Four" supermarkets over the Christmas period, reporting strong like-for-like sales in its UK stores. The "Exclusively at Tesco" range, which was launched in response to prices charged at discount supermarkets Aldi and Lidl, has proved to be very popular. The company is due to make changes to significantly reduce its cost base as they simplify the way they serve customers. We believe that Tesco is a relative winner in a highly competitive UK food retail market, with a strong management team executing on self-help opportunities. United Utilities saw a share price rise as the water regulator agreed to a fast track of their business plan. The company has committed to reducing the real cost of water bills and to cutting water leakage. Separately, the company has been named as one of Britain's healthiest workplaces in 2018. Associated British Foods was boosted by a strong Christmas trading period for Primark, which saw a rise in both sales and operating margins. Primark continues to take market share in the UK and has been growing through new store openings and existing space expansion. Internationally, the value fashion retailer is also showing strong growth.
Hiscox shares fell in January despite no stock specific news. We believe that the performance was largely due to style reversal (Hiscox performed well in relative and absolute terms in Q4) and to currency movements (strengthening Sterling is a translation headwind for the business which has a number of US Dollar denominated revenue streams). Unilever reported earnings in line with expectations, but with a change in the mix. The company appears to be taking a slight change in tack with recent results reporting growth deceleration and margin acceleration. Additionally, competitors are performing strongly, and it appears that Unilever may be losing some market share. Reckitt Benckiser has announced the departure of their CEO after 32 years service for the company. The separation of business units will continue to give Reckitt Benckiser optionality. The shares currently offer a high free cash flow yield, which we believe is sustainable, and offers valuation support as the shares are trading at a large discount, both to their own history and to the wider sector.
During the month we purchased new positions in London Stock Exchange Group, which we see as benefiting from structural revenue growth and margin expansion, and Homeserve. We have also added to various other positions, including Royal Dutch Shell, Prudential and Reckitt Benckiser. We have reduced exposure to John Laing, United Utilties and Unilever and have sold our holding in paper and packaging business Mondi.
We are broadly constructive on global markets and expect continued global growth, albeit in a less synchronised fashion across the G7 nations and at a lower level than in recent past. The trend of steady growth has provided a solid backdrop for equity market returns, which have also been helped by loose financial conditions from supportive governments and central banks. However political uncertainty is rising, which combined with tightening financial conditions (led by the Federal Reserve) means that we expect volatility to return to markets. This provides us, as active managers of a concentrated portfolio, with a great opportunity to identify high-quality cash generative businesses, with robust balance sheets, that can weather various market cycles and help to deliver long term capital and income growth for our clients.
We continue to like cash generative consumer staple companies, especially those exposed to the emerging market consumer given the prevalent demographic trends in certain markets. These companies often generate substantial cash flow which allows them to invest in innovation, marketing and distribution to ensure the longevity of their brands while also paying attractive and growing dividends to shareholders. We have also sought exposure to infrastructure and construction spend whilst at the same time we are watching for signs of overheating in the US and monitoring the natural slowdown in China. US construction spend remains well below long-term averages and initiatives to boost this spend features prominently on the political agenda. We also note that inflationary pressures are starting to build and therefore we seek those companies with sufficient pricing power and efficiency potential to withstand rising costs. As the last few months have demonstrated, it is crucial to be selective and to focus on those companies that are strong operators, that provide a differentiated service or product and that boast a strong balance sheet.
|14 February 2019|