Portfolio Update

The information contained in this release was correct as at 31 July 2020. 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:BLACKROCK INCOME & GROWTH INVESTMENT TRUST PLC )

All information is at 31 July 2020 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	-5.2%	-5.2%	-20.2%	-16.0%	-1.3%	55.9%
Net asset value	-4.2%	1.0%	-15.6%	-9.4%	4.6%	55.4%
FTSE All-Share Total Return	-3.6%	1.2%	-17.8%	-9.1%	8.4%	48.0%
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:	166.01p
Net asset value – cum income*:	167.51p
Share price:	153.00p
Total assets (including income):	41.7m
Discount to cum-income NAV:	8.7%
Gearing:	3.7%
Net yield**:	4.7%
Ordinary shares in issue***:	22,525,600
Gearing range (as a % of net assets):	0-20%
Ongoing charges****:	1.1%

* Includes net revenue of 1.50 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 4.4% and includes the 2019 final dividend of 4.60p per share declared on 24 December 2019 and paid to shareholders on 16 March 2020, and the 2020 interim dividend of 2.60p per share declared on 24 June 2020 and payable to shareholders on 1 September 2020.

*** 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	8.9
Financial Services	8.6
Household Goods & Home Construction	7.9
Mining	6.9
Personal Goods	6.8
Media	6.6
Support Services	6.5
General Retailers	4.4
Banks	4.4
Oil & Gas Producers	4.4
Tobacco	4.2
Gas, Water & Multiutilities	4.1
Nonlife Insurance	3.2
Travel & Leisure	3.2
Food & Drug Retailers	3.0
Health Care Equipment & Services	3.0
Life Insurance	2.5
Mobile Telecommunications	1.3
Electronic & Electrical Equipment	1.3
Industrial Engineering	1.1
Real Estate Investment Trusts	0.5
Construction & Materials	0.5
Beverages	0.5
Net Current Assets	6.2
	------
Total	100.0
	======

Country Analysis	Percentage
United Kingdom	92.8
United States	1.0
Net Current Assets	6.2
	-----
	100.0
	=====

Top 10 holdings	Fund %
AstraZeneca	7.3
Unilever	5.6
Reckitt Benckiser	5.3
RELX	4.9
BHP	4.9
British American Tobacco	4.2
Tesco	3.0
Smith & Nephew	3.0
National Grid	2.6
Next	2.5

Commenting on the markets, Adam Avigdori and David Goldman representing the Investment Manager noted:

Performance Overview:

BlackRock Income and Growth Trust plc’s NAV fell by -4.2% during the month, underperforming the FTSE All-Share which returned -3.6%. 

Market Summary:

July began with a record increase in new daily Covid-19 cases in several US states including Florida, Texas, Arizona, and others. Lockdowns eased in Europe leading to regionalized outbreaks throughout the month, including in Spain and Germany. Despite evidence of activity restarting as indicated by China’s services PMI hitting a decade high and US payroll topping forecasts, market volatility remained relatively elevated implying continued nervousness regarding the interplay between the spread of the virus and its impact on activity.

Persistent US Dollar weakness was a theme across markets as US long-term real yields hit new historic lows; heightened tensions with China, delays to further US fiscal support and persistently rising new Covid-19 cases all contributed to shifting sentiment.

The European Union leaders agreed on a landmark €750 billion stimulus package of joint debt to help member states mitigate economic downturn. The US Federal Reserve (the ‘Fed’) announced a three-month extension of several programs to avoid a ‘credit cliff’ at the end of September.

In the UK, the Chancellor set out the Plan for Jobs, a new package of job support worth up to £30 billion. The Job Retention Bonus is the largest element of the plan and could cost up to £9.4 billion if every furloughed UK worker is retained until the end of January by their employer, who would then be able to reclaim £1k per employee.

The FTSE All Share fell by -3.6% during the month; Oil & Gas, Telecommunications, and Consumer Services were the top underperforming sectors, whilst Technology and Basic Materials outperformed. 

Stocks:

Stock selection in industrials contributed to performance. Being underweight oil and gas also contributed. Stock selection in financials detracted from performance. The portfolio’s underweight exposure to basic materials also detracted.

Next was the top contributor to performance. Next reported second quarter numbers in July that were better than expected. Store decline was less severe than the market had feared, and its online performance saw +9%, a strong number despite the quarter being impacted by social distancing measures in the warehouse. The cash performance was additionally very strong and the credit book performance has remained very resilient. Our underweight holding in Royal Dutch Shell also contributed as oil and gas continued to underperform the wider market.

John Laing Group was the top detractor from performance. The company saw short term NAV disappointment as a result of falling long-term power prices impacting the value of their renewable assets. We expect to see some short-term dislocation for the business but overall, we expect the new CEO to re-establish long-term returns. RELX also detracted. The company had a slightly weak update compared to consensus numbers in July which saw some downgrades due to exhibitions being cancelled as a result of Covid-19. This is a core long-term holding for us, we continue to believe this business will prove resilient in the long term, and we have been using the share price weakness to add to the position.

Portfolio Activity:

We purchased Direct Line in the month in anticipation of the company returning to the dividend list given the resilience of its motor insurance franchise and strong capital position. Following the Board’s permission to invest overseas, we purchased our fist holding in Mastercard. We sold HSBC and AB Foods, preferring the long-term opportunity in Next while we remain cautious on the banking sector. We have added to holdings in 3i Group, RELX and United Utilities. We reduced National Grid and Informa. We also reduced our holding in Vodafone. The company are seeing some deterioration in its European service revenues due to Covid-19.

On Dividends:

At the time of writing, around £40 billion dividends have been cut or suspended in the UK market, with the UK dividend future implying limited recovery in the second half. 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. It is worth noting that we are significantly underweight areas of the market that have seen the largest cuts, and overweight areas of the market with either zero cuts or very minimal ones. Additionally, we are already starting to see some of our holdings return to the dividend list. Thus, we will continue to monitor the potential scenarios and would hope to provide more clarity later in the year. In the meantime, we will continue to take a long-term approach to dividends and manage the portfolio for the strongest total return. We will do what we believe is best for our clients in delivering the strongest return.

Outlook:

The scale of the economic impact of the Covid crisis, the associated lockdown and central bank intervention became more evident during the second quarter of the year. As referenced during our first quarter outlook, the hit to nominal demand and GDP was the highest on record. In the first quarter of 2020, UK consumption was the weakest since 1979 at -2.9%, whilst in the second quarter it is likely to be down c.20%. Government support also broke records, far outweighing anything seen during the financial crisis. In the UK, government borrowing is currently predicted to be £315bn for 2020/21 which represents almost 16% of GDP. This is almost double the amount (8.7%) of government borrowing in 2008/2009 and by far and away the largest in modern peacetime. Globally, more than $6 trillion has been pledged so far in support by central banks looking to limit the economic impact from the virus. This has supported risk assets globally, with a notable rise in markets from the bottom during the last six weeks of the quarter. Equity and debt markets have also been busy. In the UK, we have seen an extraordinary wave of issuance as companies have sought to improve liquidity through the crisis.

The recovery from here and the sustainability of the recent market rally depends on how fast consumption will pick up in the UK and globally. The foundation of this recovery will be built by the extent and method of the government intervention. We would expect the economy’s capacity (supply) to rebound quicker than demand and as such, would expect government policy to move from support towards stimulus. The role and type of economic stimulus to is likely to lead to material dispersion within the market over the medium-term.

We recognise the enormous uncertainty still facing society, employers and their employees today, whether it is the threat of a resurgence of the virus, the emergence of viable treatments and potential vaccines or the different speeds and ways in which governments remove restrictions and support.  We continue to tread cautiously; balancing the significant long-term opportunity we see with a wide range of short-term scenarios and factors. Amongst these are clearly the impact of widespread unemployment, the changes to both consumer and business behaviour with regards to which products and services they consume and how they consume them in addition to the potential for inflation to pick up.  Crucially, whilst we expect that the threat from Covid-19 will be addressed, either through a vaccine, rolling containment policies or herd immunity, 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.

In conclusion, we came into this crisis more defensively positioned which benefited the portfolio and leaves us in a strong position to take advantage of the dislocation. In times like these, the scale and breath of the platform at BlackRock allows us to leverage significant resources across stock analytics, market insights and data science. We know, from our experience in 2008/2009, how important these resources and support are and the opportunities it enables you to find. In the weeks and months ahead, we will continue to utilise these resources and our previous experiences in uncertain markets to continue to build on the promising start to the year to ensure the Trust emerges from this period of volatility well placed to deliver strong capital and dividend growth over the long term.

Finally, beyond markets and investments, we also recognise that this has been an extremely tough period for many. We have been encouraged by the support companies in the portfolio have provided their employees and communities and continue to support these initiatives.

24 August 2020