Portfolio Update

The information contained in this release was correct as at 30 September 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 September 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	-7.2%	1.4%	-3.1%	0.9%	8.3%	98.0%
Net asset value	-6.3%	-4.0%	-4.5%	0.6%	7.4%	85.3%
FTSE All-Share Total Return	-5.9%	-3.4%	-4.0%	2.4%	11.3%	83.0%
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:	181.64p
Net asset value – cum income*:	185.84p
Share price:	180.00p
Total assets (including income):	£43.3m
Discount to cum-income NAV:	3.1%
Gearing:	2.7%
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 4.20 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.
**** 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 2021.

Sector Analysis	Total assets (%)
Support Services	12.4
Oil & Gas Producers	9.4
Pharmaceuticals & Biotechnology	9.1
Media	8.0
Household Goods & Home Construction	6.9
Banks	6.6
Mining	5.9
Financial Services	4.7
Tobacco	4.0
Nonlife Insurance	3.3
Personal Goods	3.1
Health Care Equipment & Services	2.8
Electronic & Electrical Equipment	2.8
Food Producers	2.6
Life Insurance	2.6
Travel & Leisure	2.4
Industrial Engineering	1.8
General Retailers	1.6
Gas, Water & Multiutilities	1.3
Fixed Line Telecommunications	1.3
Real Estate Investment Trusts	0.7
Net Current Assets	6.7
	-----
Total	100.0
	=====

Country Analysis	Percentage
United Kingdom	85.3
United States	4.2
France	2.8
Finland	1.0
Net Current Assets	6.7
	-----
	100.0
	=====
Top 10 holdings	Fund %
AstraZeneca	7.9
Shell	7.5
RELX	5.3
Reckitt Benckiser	4.6
Rio Tinto	4.1
British American Tobacco	4.0
Unilever	3.1
Standard Chartered	3.0
3i Group	2.8
Smith & Nephew	2.8

Commenting on the markets, representing the Investment Manager noted:

Performance Overview:

The Company returned -6.3% during the month, modestly underperforming the FTSE All-Share which returned -5.9%.

Global equity markets fell in September after hawkish actions by central banks as their focus remains controlling core inflation. In the US, inflation data for August exceeded market expectations which prompted the Federal Reserve (Fed) to hike interest rates by 75 bps¹ for the third consecutive time denting hopes for a shift towards more dovish monetary policy.

Russia stopped supplying gas to Europe as it shut off the Nord Stream 1 pipeline indefinitely earlier in the month, citing non-payment in Russian Roubles and technical problems due to European sanctions against the country. The European Central Bank (ECB) announced a record 75 bps² hike and cut its growth forecasts, increasing fears of recession as the energy supply shock and cost of living crisis continue to dominate the economic narrative. The ECB promised further hikes despite reducing its growth outlook for 2023 as it revised its projection for 2024 inflation from 2% to 2.3%³.

The Bank of England (BoE) raised interest rates by 50 bps⁴, taking the Bank Rate to 2.25%, with further increases expected later this year. Liz Truss took office as the UK’s new prime minister and as her first order of business, announced a relief package to shield the country from soaring energy prices. The month ended tumultuously as lax fiscal policy clashed with the tightening objective of the BoE. A UK rates sell-off was triggered by the new government’s mini-budget session, where policies including unfunded tax cuts were announced. The British Pound hit a 37-year low against the US dollar⁵ as the 10-year benchmark yield saw its highest monthly increase since the 1970s. The BoE announced an intervention buying long-term bonds in order to reverse this disorderly yield spike which led to the 30-year gilt yield posting its largest one-day drop on record.

The FTSE All Share Index returned -5.9% for September where the worst performing sectors included Telecommunications, Utilities and Financial. The only sector to deliver a positive return during the month was Basic Materials.

Stocks:

Given the crisis of confidence that ensued following the unveiling of the mini-budget, international shares including Smith & Nephew and Rio Tinto performed relatively better and contributed to relative performance of the Company while domestic holdings including BT, Taylor Wimpey and Moonpig performed poorly and detracted.

EuroAPI announced strong numbers for its first statement as a public company where revenue beat expectations by 5% and EBITDA by 10%. Pearson also posted robust interim results and announced a new £100m cost efficiency programme leading analysts to upgrade medium term forecasts by 10-20%. We feel the management turnaround is beginning to show real traction with emphasis shifting away from the legacy textbook business to the stable growth, highly cash generative core where we see material value. Both EuroAPI and Pearson were top positive contributors to relative performance during the month.

Financial companies, including Phoenix Group and Lloyds, were impacted by stress in the financial system due to the fall-out from the mini-budget announcement; both companies detracted from relative performance. Reckitt Benckiser was another top detractor from performance after the management change announcement.

Portfolio Activity:

During the period, we reduced Financials exposure in fund, including the sale of Legal & General, given challenges in the financial system in UK. We purchased a small position in Kone, the elevator engineering company. Kone trades at a significant discount to peers, is cash generative and has historically paid a compelling dividend. We also sold Drax. While we view the valuation of the company as attractive, the upside from here will come from development rather than power prices.

Outlook

As we enter Q4, and we look ahead into 2023, the headwinds facing global equity markets continue to grow. 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 across the developed world continue to unwind years of excess liquidity by tightening monetary and fiscal policy, increasing interest rates and withdrawing stimulus. The recent ‘mini-budget’ in the UK highlights the ramification of policy errors in a tightening liquidity environment, with long dated gilts reaching levels last seen in 2004. 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 as we have said previously, the risk of policy mistakes exist 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 markets tighten further.

The UK’s policy has somewhat diverged from the G7 in fiscal policy terms as the new government attempts to create some economic momentum into an election cycle through looser fiscal policy. The market reaction to this was severe, with short term rates moving towards 6% forcing intervention by the BoE into buying long dated gilts to support liquidity. This government policy has, conversely, led to a worsening of the UK economic outlook despite the subsequent backtracking. 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. Valuations across the market continue to remain highly supportive as currency weakness supports international earnings, whilst domestic earners are in many cases reaching COVID or Brexit lows in share price or valuation terms. Whilst we anticipate further volatility ahead as earnings estimates moderate, we know that in the course of time, risk appetites will return.

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.

¹ Financial Times – Jay Powell refuses to rule out US recession after third 0.75 percentage point rate rise

² Financial Times – ECB raises rates by 75 basis points and promises more to come

³ Yahoo Finance – ECB raises inflation forecasts again, slashes 2023 growth outlook

⁴ Financial Times – Bank of England lifts interest rates by 0.5 percentage points

⁵ Financial Times – Pound hits 37-year low against dollar on huge UK tax cut ‘gamble’

17 October 2022