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BlackRock Income (BRIG)

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Thursday 20 December, 2018

BlackRock Income

Portfolio Update

BLACKROCK INCOME AND GROWTH INVESTMENT TRUST PLC (LEI:5493003YBY59H9EJLJ16)
All information is at 30 November 2018 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 0.5% -9.8% -5.2% 9.0% 32.6% 74.1%
Net asset value -1.5% -9.1% -4.2% 10.3% 35.5% 65.1%
FTSE All-Share Total Return -1.6% -6.1% -1.5% 22.6% 29.2% 62.2%
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: 186.08p
Net asset value - cum income*: 191.31p
Share price: 184.00p
Total assets (including income): £50.0m
Discount to cum-income NAV: 3.8%
Gearing: 2.5%
Net yield**: 3.6%
Ordinary shares in issue***: 24,059,668
Gearing range (as a % of net assets) 0-20%
Ongoing charges****: 1.1%

   

* includes net revenue of 5.23 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 3.6% and includes the 2017 final dividend of 4.10p per share declared on 20 December 2017 and paid to shareholders on 9 March 2018 and the 2018 interim dividend of 2.50p per share declared on 25 June 2018 and paid to shareholders on 3 September 2018.
*** excludes 8,874,264 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 2018.

   

Sector Analysis Total assets (%)
Pharmaceuticals & Biotechnology 10.6
Oil & Gas Producers 10.6
Banks 8.5
Food Producers 6.6
Support Services 6.3
Media 6.0
Life Insurance 5.1
Financial Services 5.1
Household Goods & Home Construction 4.7
Industrial Engineering 4.2
Tobacco 4.0
Travel & Leisure 3.3
Food & Drug Retailers 2.9
Gas, Water & Multiutilities 2.9
Nonlife Insurance 2.4
Mining 2.3
General Retailers 1.9
Mobile Telecommunications 1.7
Forestry & Paper 1.3
Personal Goods 1.2
Electronic & Electrical Equipment 1.1
Chemicals 0.6
Construction & Materials 0.5
Software & Computer Services 0.5
Net Current Assets 5.7
------
Total 100.0
======

   

Ten Largest Equity Investments
Company Total assets (%)
Royal Dutch Shell 'B' 6.1
RELX 4.9
Unilever 4.2
GlaxoSmithKline 4.1
AstraZeneca 3.8
John Laing Group 3.7
Lloyds Banking Group 3.6
BP Group 3.6
Reckitt Benckiser 3.4
Prudential 3.2

   

Commenting on the markets, Adam Avigdori and David Goldman representing the Investment Manager noted:
UK Equities experienced a second month of declines in November. The FTSE All-Share Index fell -1.6% during the month and hit its lowest level since December 2016. Further sterling weakness against the US Dollar failed to provide support for the FTSE 100, which has historically benefited from a weaker pound; this relationship has broken down in 2018. Brexit related newsflow continued to dominate headlines. The European Council and the UK Government agreed a political declaration and withdrawal agreement on future trade with the EU. Despite rumours of reservations from a number of ministers, Theresa May secured backing from her cabinet, however this was followed by further resignations from a number of cabinet ministers and an unsuccessful attempt to lead a vote of no confidence in the Prime Minister’s leadership. Parliament’s ‘meaningful vote’ on the withdrawal agreement, previously scheduled for 11 December 2018, has been deferred to the week commencing 14 January 2019. Elsewhere, Donald Trump and President Xi Jinping agreed to work together to resolve the US/China trade disputes, however the risks remain. The rotation that began in October continued in November, with the momentum factor continuing to be the biggest victim. Defensive sectors were the best performing areas of the market, led by healthcare while industry/stock specific factors saw the traditionally defensive tobacco sector underperform.

Over the month the Company delivered a return of -1.5%, outperforming the FTSE All-Share Index which delivered a return of -1.6%.

As a more defensive holding, RELX has been performing well during this point in the market cycle. The company reported results in line with expectations. Organic growth is slowing slightly, but remains positive, with the journals business maintaining the same trend it has seen for many years. Importantly, RELX is demonstrating that they continue to have good pricing power. John Laing Group hosted a capital markets day this month, reiterating their continued investment in Australia and North America, where they have a large, varied and exciting pipeline of opportunities. The company has a new head in Europe, a difficult region for the group of late, which may help in the medium-term. We retain our conviction in this business which is well exposed to the infrastructure investment trends that we are seeing globally. Standard Chartered is reported to be drawing up plans for a share buyback in February 2019, which would be the for the first time in many years. The shares trade at a discount to book value making this an attractive time for the company to embark on this programme. Additionally, the company is highly cash generative and has a sound balance sheet, further supporting the case.

Taylor Wimpey have guided to flat volumes in 2019, which is in contrast to good sales rates over recent months. This is partly due to current political and economic uncertainty and partly due to delays in the opening of some large sites. Taylor Wimpey is financially strong and offers a high yield however, although selling prices remain flat, inflation is starting to creep into building costs which is impacting profit. An underweight position to HSBC, a large constituent of the benchmark, impacted relative returns over the month. The latest results from the company showed both revenue and costs to be better than expectations, leading to an uptick in profit and share price. Multiple business lines within the bank are benefiting from rising rates and the volatility in FX has also been beneficial for HSBC in recent months. Vodafone had a strong month with a lot of poor inventory coming out of the business and upgrades to free cash flow. The business is putting greater emphasis on cost cutting over the next three years and is maintaining their dividend. We purchased the shares mid-way through the month.

During the month we purchased a new position in Vodafone and have added to holdings including in Reckitt Benckiser, Whitbread, Associated British Foods and European-listed pharmaceutical pharmacy business Sanofi. Through November, we have reduced exposure to British American Tobacco, Carnival, Lloyds and John Laing. We have sold our holding in Admiral.

We are broadly constructive on global markets and expect continued global growth, albeit in a less synchronised fashion across the G7 nations and at a lower level than in recent past. The trend of steady growth has provided a solid backdrop for equity market returns, which have also been helped by loose financial conditions from supportive governments and central banks. However, political uncertainty is rising which, combined with tightening financial conditions (led by the Federal Reserve), means that we expect volatility to return to markets. This provides us, as active managers of a concentrated portfolio, with a great opportunity to identify high-quality cash generative businesses, with robust balance sheets, that can weather various market cycles and help to deliver long term capital and income growth for our clients.

We continue to like cash generative consumer staple companies, especially those exposed to the emerging market consumer given the prevalent demographic trends in certain markets. These companies often generate substantial cash flow which allows them to invest in innovation, marketing and distribution to ensure the longevity of their brands while also paying attractive and growing dividends to shareholders. We have also sought exposure to infrastructure and construction spend whilst at the same time we are watching for signs of overheating in the US and monitoring the natural slowdown in China. US construction spend remains well below long-term averages and initiatives to boost this spend features prominently on the political agenda. We also note that inflationary pressures are starting to build and therefore we seek those companies with sufficient pricing power and efficiency potential to withstand rising costs. As the last few months have demonstrated, it is crucial to be selective and to focus on those companies that are strong operators, that provide a differentiated service or product and that boast a strong balance sheet.
20 December 2018

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