Portfolio Update

The information contained in this release was correct as at 31 January 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 31 January 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	1.3%	0.0%	12.2%	13.7%	18.8%	102.3%
Net asset value	-1.1%	2.2%	16.0%	21.4%	26.8%	100.0%
FTSE All-Share Total Return	-0.3%	2.0%	18.9%	21.7%	30.2%	97.9%
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:	202.64p
Net asset value – cum income*:	207.72p
Share price:	191.00p
Total assets (including income):	£48.3m
Discount to cum-income NAV:	8.1%
Gearing:	5.1%
Net yield**:	3.8%
Ordinary shares in issue***:	21,321,283
Gearing range (as a % of net assets):	0-20%
Ongoing charges****:	1.2%
* Includes net revenue of 5.08 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 2021 interim dividend of 2.60p per share declared on 23 June 2021 and paid to shareholders on 1 September 2021 and the 2021 final dividend of 4.60p per share declared on 13 January 2022, with pay date 17 March 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	14.4
Pharmaceuticals & Biotechnology	8.3
Household Goods & Home Construction	7.6
Media	6.9
Mining	6.9
Life Insurance	6.1
Financial Services	5.5
Oil & Gas Producers	5.5
Banks	5.3
Tobacco	4.3
Nonlife Insurance	4.0
General Retailers	2.7
Travel & Leisure	2.6
Food & Drug Retailers	2.5
Electronic & Electrical Equipment	2.5
Personal Goods	2.4
Health Care Equipment & Services	2.0
Food Producers	2.0
Electricity	1.0
Software & Computer Services	1.0
Fixed Line Telecommunications	0.8
Real Estate Investment Trusts	0.8
Technology Hardware & Equipment	0.7
Industrial Engineering	0.6
Net Current Assets	3.6
	-----
Total	100.0
	=====

Country Analysis	Percentage
United Kingdom	88.7
United States	4.7
France	3.0
Net Current Assets	3.6
	-----
	100.0
	=====
Top 10 holdings	Fund %
AstraZeneca	6.5
RELX	5.0
Rio Tinto	4.6
Reckitt Benckiser	4.3
British American Tobacco	4.3
Shell	4.0
3i Group	3.2
Legal & General Group	3.2
Standard Chartered	3.1
Electrocomponents	3.0

Commenting on the markets, representing the Investment Manager noted:

Performance Overview:

The Company returned -1.1% during the month, underperforming the FTSE All-Share which returned -0.3%.

2022 has begun with very volatile market moves and the largest monthly outperformance of value versus growth in more than 20 years.

Concerns around central bank tightening in response to rising inflation as well as tensions in Eastern Europe led to a sharp increase in volatility. Developed markets ended the month in negative territory, whilst Emerging Markets outperformed.

Growth stocks trading on high valuations saw significant selling, notably in areas that had previously benefited from the ‘stay at home’ dynamic, where concerns were high that revenue growth that had benefited from the pandemic was unlikely to continue. Tightening liquidity fears and higher financing costs from interest rate rises in the coming quarters also weighed on share prices. Despite the late rally at the end of the month, the S&P had its worst January since 2009.

January’s Federal Open Market Committee meeting confirmed widespread expectations for the Fed ending its bond purchase programme in March, as well as mentioning that the FOMC is now actively looking to reduce its inflated balance sheet. Accordingly, markets are now pricing in a total of five rate hikes in 2022.

Oil and gas prices continued to rally, with brent oil hitting $90 per barrel for the first time since October 2014, driven by falling oil stockpiles in the US and rising political tensions with Russia. This, combined with higher US treasury yields saw energy and financial stocks significantly outperform other parts of the market.

The FTSE All Share fell -0.33% during the month with Technology, Industrials, and Consumer Services as top underperforming sectors while Oil & Gas, Telecommunications, and Basic Material outperformed.

Stocks:

Top detractors from performance were predominantly related to the growth/value rotation and were shares that have substantially derated in this rotation, however, the underlying businesses have continued to perform strongly. Our overweight positioning and stock selection in Industrials was the top detractor from returns where the likes of Schneider Electric, Rentokil, Ferguson and Electrocomponents all fell without any negative events. One company that fell on specific newsflow was Taylor Wimpey which was impacted by fears of further costs associated with the cladding removal bill.

Top contributors to returns were financials that benefitted from the change in regime after struggling in the second half of 2021; these included Standard Chartered, Direct Line, and Hiscox. Mastercard also contributed to performance after the company reported solid results in the month with strong payment volumes and, importantly given recent share price weakness, strong cross-border volume. This supports our Mastercard thesis that normalisation in activity will drive above-trend growth in volume and will normalise margins.

Portfolio Activity:

During the period, we purchased a new holding in BT. The company is building out the UK’s national fibre network, targeting >25m homes, providing customers and businesses with access to high-speed internet. We believe that the regulatory landscape for the UK telecom industry is improving and that the market participants are behaving more rationally. We are seeing price rises of CPI +4%, with limited backlash so far and all operators following suit. BT have the ability to put through in-contract price rises in their contract wording, limiting any sticker shock. As the telecoms bill represents 0.4% of UK Household bills, a 9% rise equates to c. £50 p.a. There is a high drop through from these price rises to the bottom line and cash flow, and the capex investment phase around fibre slows in around 4 years, at which point there should be a meaningful uplift in free cash flow generation.

We sold our holding in Oxford Nanopore following strong share price performance post Initial Public Offering. We also sold the position in Smiths Group. After the successful sale of the company’s medical division and recent strength in the share price, the investment case now requires an acceleration in organic growth which we believe may prove more challenging given tightening fiscal and monetary policy. During the period we also sold our holding in THG. Notwithstanding the attractive long-term potential of their business, our confidence in the execution of this strategy has been eroded over several recent weaker statements. The current high-cost environment exacerbates significant pressure on cashflow on a business where its current investment needs are high. 

Outlook:

2022 has proven to be exceptionally volatile so far. The backdrop for global equities, in our view, is mixed. Although demand remains strong, the outlook for corporate revenue and earnings growth is likely to worsen over the course of 2022 as government stimulus is retracted and monetary policy is tightened in the face of more persistent inflationary pressures. It will be incredibly important to focus on companies with strong, competitive positions, at attractive valuations that can deliver in this environment.

Since the year has started, the attention has shifted from Covid to predicting changing monetary policy and its implications. Central banks, universally across the developed world, have started the year in a far more hawkish manner and as a result, market expectations for higher rates and faster quantitative tightening have risen considerably during January. Time will tell whether the current inflationary trends are the temporary impact from the significant Covid stimulus, unwinding of extreme Covid behaviours or a more structural shift in the cost of labour, the impact on costs from the decarbonisation agenda or a combination of the above. It is difficult to have a high degree of confidence on the outcome but we would note given the uncertainty there is a rising risk of a policy mistake; either being too late to tighten and/or tightening too hard. We expect this to be the prevailing debate of 2022 and beyond and would expect the market to oscillate between the two scenarios.

The strain on supply chains, caused by strong economic activity overwhelming Covid afflicted capacity and restricted labour availability, will continue to provide inflationary pressures which can squeeze companies’ margins. 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. However, 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 expand margins.  Management teams have pointed to robust demand, prioritisation of security of supply as well as well-publicised supply chain disruption and cost pressures. However, we believe that as some of 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 structural 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.

We also note the UK’s relative valuation discount to global equity markets has continued to widen over the course of 2021, despite the resurgence in takeover activity as bidders capitalise on this arbitrage. Specifically, we’ve seen acquisitions of real assets and a desire to find unlevered free cash flow. As we move into 2022, we see cash generation continuing to improve and dividends payments recovering; broadly speaking we've been surprised by how quickly dividends have come back with large contributions from the mining sector where the likes of Rio Tinto and BHP have been able to pay large special dividends. While dividends are not far off from pre-Covid levels as most companies are paying dividends once more, we note the large contribution from special dividends that may not persist. That said, as the highest dividend yielding market in the developed world, we see the fundamental valuation of the UK as attractive. We also view the outlook for ordinary dividends for the UK market with optimism as most companies have emerged from the Covid crisis with appropriate dividend policies.

We continue to have conviction in cash generative companies with durable competitive advantages, exceptional management teams and underappreciated growth potential. At present, we are excited by the continuation of the economic recovery and the attractive stock-specific opportunities on offer.

21 February 2022