BlackRock Income Portfolio Update
April 17 2020 - 6:48AM
UK Regulatory
TIDMBRIG
BLACKROCK INCOME AND GROWTH INVESTMENT TRUST PLC (LEI:5493003YBY59H9EJLJ16)
All information is at 31 March 2020 and unaudited.
Performance at month end with net income reinvested
One Three One Three Five Since
Month Months Year Years Years 1 April
2012
Sterling
Share price -16.8% -27.7% -18.0% -18.0% -6.2% 46.9%
Net asset value -14.2% -24.4% -16.7% -12.7% 0.5% 45.4%
FTSE All-Share Total Return -15.1% -25.1% -18.5% -12.2% 2.9% 39.3%
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: 156.68p
Net asset value - cum income*: 159.09p
Share price: 146.50p
Total assets (including income): GBP40.3m
Discount to cum-income NAV: 7.9%
Gearing: 2.5%
Net yield**: 4.9%
Ordinary shares in issue***: 22,840,600
Gearing range (as a % of net assets) 0-20%
Ongoing charges****: 1.1%
* includes net revenue of 2.41 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 4.9% 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 2019 interim dividend of 2.60p per
share declared on 25 June 2019 and paid to shareholders on 2 September 2019.
*** 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 Analysis Total assets (%)
Pharmaceuticals & Biotechnology 8.5
Food Producers 8.1
Household Goods & Home Construction 7.4
Oil & Gas Producers 6.6
Support Services 6.2
Media 6.2
Mining 5.9
Financial Services 5.7
Banks 5.2
Gas, Water & Multiutilities 4.9
Tobacco 4.8
Travel & Leisure 4.8
Food & Drug Retailers 3.2
Health Care Equipment & Services 2.9
Mobile Telecommunications 2.6
Life Insurance 2.2
General Retailers 2.2
Electronic & Electrical Equipment 1.3
Industrial Engineering 1.1
Personal Goods 1.0
Nonlife Insurance 0.8
Construction & Materials 0.5
Beverages 0.2
Net Current Assets 7.7
------
Total 100.0
======
Ten Largest Equity Investments
Company Total assets (%)
AstraZeneca 6.6
Unilever 5.1
RELX 4.9
National Grid 4.9
British American Tobacco 4.8
BHP 4.2
Reckitt Benckiser 4.1
Royal Dutch Shell 'B' 3.8
Tesco 3.2
Associated British Foods 3.0
Commenting on the markets, Adam Avigdori and David Goldman representing the
Investment Manager noted:
The global pandemic continued to dominate events in March. In attempts to
halt its spread for healthcare systems to cope, global economic activity is
being deliberately frozen and halted. Global markets accordingly experienced
significant sell-offs the magnitude and volatility of which echoed the falls
from 2008; we saw new index lows and the VIX actually exceeding the highs
from the global financial crisis, reaching 85%. The same amount of return
dispersion was seen in the last month as was seen during the whole of 2017.
The sell-off in risk assets was compounded after Saudi Arabia responded
aggressively to Russia's refusal to agree with OPEC's latest round of output
cuts, which saw crude prices plunge by more than 50% in March, a 67% decline
for Q1. After the precipitous increase in cases in Europe, notably Italy, the
World Health Organization declared COVID-19 a pandemic on March 12th. Several
European countries started implementing lockdowns in an effort to mitigate
the spread which led to the biggest one-day decline in markets since Black
Monday in 1987.
In a bid to prevent an economic downturn, aggressive rate cuts were
implemented by Central Banks; the Bank of England cut the Bank Rate to 0.1%
and the US cut interest rates to zero. Additionally, the ECB asked European
banks not to pay out dividends until at least October 2020 and the BoE
requested UK banks to halt dividend payments. A coordinated and comprehensive
global policy response was delivered with several countries announcing robust
stimulus packages. The news of US authorities approving a $2th fiscal package
(equating to 10% of GDP) was followed by a record-breaking session with the
Dow's biggest percentage gain since 1933. The introduction of further
decisive and significant fiscal policy measures across major economies did
help investor confidence to show signs of stabilising, however, the rally
quickly faded as the number of reported cases in the US jumped and
restrictions on movement were extended. As the number of new COVID-19 cases
in China began to plateau, official PMIs rebounded back to expansion
territory at the end of March and many Chinese factories returned to
production. However, as the pandemic spreads globally and more nations
implement social distancing measures, concerns of a global growth slowdown
are likely to persist.
Not immune to the impact of the virus, the UK made an effort to use the full
range of tools to mitigate economic impact. This included announcing a fiscal
package with loan guarantee of GBP330bn (equivalent to 15% of GDP) a week after
cutting interest rates. After giving social distancing guidance from March
20th, a quasi-lockdown was imposed on March 24th. Later in the month the UK
government delivered a further fiscal package of unprecedented (but difficult
to estimate) scale to support workers hit by coronavirus-related layoffs
which created some positive reaction in the UK market.
Over the month, the BlackRock Income and Growth Investment Trust returned
-14.2%, outperforming the benchmark, the FTSE All-Share which returned
-15.1%.
Tesco was the largest contributor to performance. Share prices in food
retailers were strong as news of customers stockpiling food as lockdowns were
imposed. Equally, food retailers are likely to be beneficiaries of the
closure of restaurants and cafés as they are increasingly relied upon for
food. John Laing Group also contributed to performance. Its underlying assets
tend to be economically insensitive. Given the company's underlying
investments are stable and its valuation undemanding, shares have held up
relatively defensively. Reckitt Benckiser contributed to performance as it is
a defensive company and as sales of products such as Dettol increased as a
result of the pandemic.
The holdings in easyJet and Taylor Wimpey detracted from performance. The
travel and housebuilding sectors have been weak given they are in the eye of
the storm created by the coronavirus downturn with planes grounded in the
case of the former, and building sites shut in the case of the latter. We
continue to believe these franchises will survive and will come out of this
economic shut down in strong positions than a number of their competitors.
The Trust's underweight position in Rio Tinto detracted from performance.
Whilst we added to the position over the course of the month, we remain
underweight. Shares held up as its mines remain open and production
continues. Equally, as China reopens, demand there should recover. Mining
shares more generally should also benefit from the fiscal stimulus announced,
implying there will be more infrastructure.
Over the course of the month, we have removed positions with financial
gearing, especially when this has been combined with operational gearing.
Thus, our overall weighting in financials has reduced. The extreme market
sell-off has also provided us with an unprecedented opportunity to buy great
companies at great prices. We have bought positions in businesses where we
feel comfortable around their liquidity, the balance sheet, and are of the
view that the business is likely to emerge from this global, natural disaster
stronger than its competition. We will continue to add new holdings to the
trust where we see fit.
* During the month we bought positions in Next, Berkeley Group, Burberry,
SSP Group, Rio Tinto and WH Smith.
* We sold positions in CRH, Aviva, London Stock Exchange, WPP, Euromoney
and St James' Place.
* We reduced positions in Tesco, 3i Group, HSBC.
* We added to positions in BHP Group, Whitbread, Hiscox, Bodycote,
Rightmove and Reckitt Benckiser.
The covid-19 crisis is the closest we have got to a global natural disaster,
and its impact has been immediate. Entire industries are being shut down
overnight with revenues effectively going to zero. It has been felt much more
acutely than anything we have seen in recent memory. Whilst in 'normal'
economic downturns, activity slows gradually over months, with 'lockdowns' by
governments, activity has slowed very dramatically.
We will see the largest fall in nominal demand we have ever seen. The GDP
impacts across the world are comfortably double digit. Early estimates imply
that GDP in the US will contract by nearly 30% in the second quarter. Whilst
the scale of this crisis has been unprecedented, we have also seen an
unparalleled scale of government intervention as well. This should provide a
cushion to consumer businesses that are being hurt by the impact of the
shutdowns.
Coronavirus will be resolved, either through a vaccine, rolling containment
policies or herd immunity. However, it is the duration of the pandemic and
associated containment policies that will be crucial in determining the state
of the economy and speed of recovery thereafter.
On Dividends:
At the time of writing, around 110 companies in the FTSE All Share have
suspended their dividends. We expect this figure to rise further over the
coming weeks and months. We are mindful of the scrutiny companies will face
with regards to paying dividends, especially for those businesses accepting
government support or cutting employee remuneration and/or headcount. For
now, the language from the majority of companies has been to suspend, rather
than cut the dividend. From here, everything will depend on the duration and
severity of this crisis as to how many of these dividends come back. We
continue to take a long-term approach to dividends and total return, and we
will do what we believe is best for our clients in delivering the strongest
return. We will update our clients and the market as we get more clarity.
In conclusion:
We came into this crisis more defensive which benefited the portfolio. The
Trust, whilst down in absolute terms, has outperformed the benchmark. Our
philosophy is to be style-agnostic, to concentrate on stock specific risk and
to ensure we maximise this through building high conviction portfolios. Here
at BlackRock we have a significant competitive advantage in stock selection
given the immense research platform we sit on, the data and risk tools we
have, and the excellent access we receive from companies. In the month of
March, as the crisis unfolded and as 90% of the global workforce began
working from home, the UK team have still met with over 210 management teams;
seeking to understand the company's cash balances, the likelihood of
breaching debt covenants and the consequences of doing so. We recognise this
is a great time of difficulty for our client base. However, this is also a
period of enormous opportunity. The next few months will give us great
opportunities to buy companies at prices we couldn't have dreamt of a few
months ago and should enable us to deliver stronger total return in the
medium and long term.
17 April 2020
END
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