BlackRock Income Portfolio Update
February 20 2023 - 9:48AM
UK Regulatory
TIDMBRIG
The information contained in this release was correct as at 31 January 2023.
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 31 January 2023 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 1.8% 13.7% 5.8% 8.0% 12.2% 114.0%
Net asset value 5.3% 11.6% 6.7% 13.7% 21.5% 113.3%
FTSE All-Share Total Return 4.5% 10.4% 5.2% 15.6% 23.1% 108.2%
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: 208.90p
Net asset value - cum income*: 213.87p
Share price: 194.50p
Total assets (including income): £48.8m
Discount to cum-income NAV: 9.1%
Gearing: 3.2%
Net yield**: 3.8%
Ordinary shares in issue***: 20,968,251
Gearing range (as a % of net assets): 0-20%
Ongoing charges****: 1.2%
* Includes net revenue of 4.97 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 3.8% and includes the 2022
interim dividend of 2.60p per share declared on 22 June 2022 with pay date 1
September 2022 and the 2022 final dividend of 4.70p per share declared on 1
February 2023 with pay date 15 March 2023.
*** excludes 10,081,532 shares held in treasury.
**** The Company's ongoing charges are calculated as a percentage of average
daily net assets and using management fee and all other operating expenses
excluding finance costs, direct transaction costs, custody transaction charges,
VAT recovered, taxation and certain non-recurring items for the year ended 31
October 2022.
Sector Analysis Total assets (%)
Support Services 10.9
Pharmaceuticals & Biotechnology 10.0
Oil & Gas Producers 8.9
Banks 8.8
Media 7.5
Mining 7.1
Financial Services 6.3
Household Goods & Home Construction 6.2
General Retailers 4.3
Personal Goods 4.0
Tobacco 3.2
Life Insurance 3.0
Health Care Equipment & Services 2.9
Electronic & Electrical Equipment 2.6
Food Producers 2.5
Nonlife Insurance 1.8
Gas, Water & Multiutilities 1.3
Fixed Line Telecommunications 1.1
Leisure Goods 1.0
Real Estate Investment Trusts 0.9
Travel & Leisure 0.5
Net Current Assets 5.2
-----
Total 100.0
=====
Country Analysis Percentage
United Kingdom 88.4
Switzerland 2.2
United States 2.2
France 2.0
Net Current Assets 5.2
-----
100.0
=====
Fund %
Top 10 holdings
Shell 7.1
AstraZeneca 6.9
Rio Tinto 4.7
RELX 4.6
Reckitt Benckiser 4.0
3i Group 3.7
British American Tobacco 3.2
Standard Chartered 3.2
Phoenix Group 3.0
Smith & Nephew 2.9
Commenting on the markets, representing the Investment Manager noted:
Performance Overview:
The Company returned 5.3% during the month, outperforming the FTSE All-Share
which returned 4.5%.
Global equity markets had an exceptionally strong start to 2023, unwinding some
of the 2022 year-end moves. Optimism for a dovish stance from central banks,
combined with lower energy prices and a potential boost from China's
accelerated reopening saw some exceptional price moves, with the Nasdaq posting
its best January performance since 2001. Bond yields fell and "risk on" sectors
rose, whilst sectors that proved resilient in 2022 underperformed.
In the US, the dominant market narrative shifted from recession to
soft-landing. Both headline and core inflation eased as goods prices fell
further than the market expected and core services excluding shelter surprised
on the downside. On the other hand, jobs growth slowed further but still showed
resilience as the unemployment rate fell unexpectedly, reverting to a historic
low. Labour costs slowed for the third consecutive quarter though, signalling
that wage inflation is potentially starting to roll over despite a tight labour
market, adding further fuel to the fire that interest rate hikes are nearing
the peak.
Europe returned to growth for the first time since mid-2022 as the composite
Purchasing Managers' Index (PMI) rose for a third consecutive month. This
showed that activity was improving, led by services, as the energy shock
relented and further reinforced the European Central Bank's resolve of further
monetary tightening. This rise in Eurozone PMI contrasted with an unexpected
deterioration in the UK, where the corresponding index recorded the sharpest
decline in activity in 2 years. Another factor that fuelled confidence was the
fact that the mild winter in Europe has meant European higher gas storage in
2021.
In China, Q4 2022 GDP beat depressed expectations after the zero-Covid policy
was suddenly eased. The economy is expected to rebound in 2023 as domestic
consumption and investment are expected to pick up with Chinese households
having accumulated over USD 2.6 trillion1 of bank deposits in 2022.
The FTSE All Share rose 4.5% during the month with Consumer Services,
Telecommunications and Financials as top performing sectors while Health Care
and Consumer Goods underperformed.
Stocks:
3i was the top contributor to relative portfolio performance as the company
delivered strong results with discount retailer Action performing very well
over the Christmas period. This drove a significant increase in 3i's NAV which
positively surprised against modest expectations. Consumer facing names
including Whitbread and Howden Joinery also performed well as the market
continued to be positively surprised by consumer spending holding up over the
Christmas period. BHP also contributed to relative performance as markets
sought Chinese exposure given the economy's re-opening post the end of Covid
lockdowns.
Pearson was a top detractor from relative performance during the month; the
company was a very strong performers during 2022 and January saw some
consolidation in its share price. Rentokil was modestly weaker during January
as investors rotated into cyclicals. Similarly, other defensive holdings
including Reckitt Benckiser and Smith & Nephew also detracted for the same
reason.
Changes:
During the period, we purchased Swiss pharmaceutical company, Roche. Following
a period of underperformance, we view the company as having an attractive
valuation supported by a strong balance sheet. We also purchased NatWest as
banks continue to see meaningful upgrades in the rising interest rate
environment. We sold Equifax, Kone and Whitbread following strong recent
performance. Whilst Kone and Equifax have been relatively recent additions,
purchased in the second half of 2022, we have been pleasantly surprised by the
early strong performance. Both share prices reached levels where we felt their
prospects were well understood and consequently saw better value elsewhere.
Outlook:
As we look ahead into 2023, the headwinds facing global equity markets are
evident. Inflation has consistently surprised in its depth and breadth, driven
by the resilient demand, supply chain constraints, and most importantly by
rising wages in more recent data. Central banks across the developed world
continue to unwind ten years of excess liquidity by tightening monetary policy
desperate to prevent the entrenchment of higher inflation expectations.
Meanwhile, the risk of policy error from central banks or politicians remains
high as evidenced by the turmoil created by the 'mini-budget' in the UK that
sent gilts spiralling. The cost and availability of credit has changed and
strengthens our belief in investing in companies with robust balance sheets
capable of funding their own growth. The rise in the risk-free or discount rate
also challenges valuation frameworks especially for long duration, high growth
or 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. We are conscious of the impact this has
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.
We also see the potential for longer-term inflationary pressure from
decarbonisation and deglobalisation, the latter as geopolitical tensions rise
more broadly across the world.
As we enter 2023, we have seen the first signs of demand weakness, notably in
areas of consumer spending impacted by rising interest rates such as demand for
new housing. We would expect broader demand weakness as we enter 2023 although
the 'scars' of supply chain disruption are likely to support parts of
industrial capex demand as companies seek to enhance the resilience of their
supply chains. A notable feature of our conversations with a wide range of
corporates has been the ease with which they have been able to pass on cost
increases and protect or even expand margins during 2022 as evidenced by US
corporate margins reaching 70-year highs. We believe that as demand weakens and
as the transitory inflationary pressures start to fade during 2023 (e.g.
commodity prices, supply chain disruption) then pricing conversations will
become more challenging despite pressure from wage inflation which may prove
more persistent. While this does not bode well for margins in aggregate, we
believe that 2023 will see greater differentiation as corporates' pricing power
will come under intense scrutiny.
The UK's policy has somewhat diverged from the G7 in fiscal policy terms as the
present government attempts to create stability after the severe reaction from
the "mini-budget". The early signs of stability are welcome as financial market
liquidity has increased and the outlook, whilst challenged, has improved.
Although the UK stock market retains a majority of internationally weighted
revenues, the domestic facing companies have continued to be impacted by this
backdrop, notably financials, housebuilders and property companies. The
valuation of the UK market remains highly supportive as currency weakness
supports international earnings, whilst domestic earners are in many cases at
COVID or Brexit lows in share price or valuation terms. Although we anticipate
further volatility ahead as earnings estimates moderate, we know that in the
course of time, risk appetites will return and opportunities are emerging.
We continue to focus the portfolio on cash generative businesses with durable,
competitive advantages boasting strong leadership as we believe these companies
are best-placed to drive returns over the long-term. We anticipate economic
and market volatility will persist in 2023 and we are excited by the
opportunities this will likely create by identifying those companies using this
cycle to strengthen their long-term prospects as well as attractive turnarounds
situations
1 Financial Times - China's record $2.6tn rise in savings fuels 'revenge
spending' hopes
20 February 2023
END
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