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BlackRock Income (BRIG)

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Friday 09 November, 2018

BlackRock Income

Portfolio Update

BLACKROCK INCOME AND GROWTH INVESTMENT TRUST PLC (LEI:5493003YBY59H9EJLJ16)
All information is at 31 October 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 -7.1% -10.7% -8.0% 9.8% 31.5% 73.2%
Net asset value -7.6% -9.4% -4.5% 14.3% 37.8% 67.7%
FTSE All-Share Total Return -5.2% -7.2% -1.5% 25.4% 30.5% 65.0%
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: 189.61p
Net asset value - cum income*: 194.26p
Share price: 183.00p
Total assets (including income): £50.7m
Discount to cum-income NAV: 5.8%
Gearing: 2.3%
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 4.65 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 3.4% 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 2017.

   

Sector Analysis Total assets (%)
Oil & Gas Producers 11.3
Pharmaceuticals & Biotechnology 10.2
Banks 8.3
Food Producers 6.2
Tobacco 6.1
Support Services 6.1
Media 5.7
Financial Services 5.4
Life Insurance 5.1
Industrial Engineering 4.3
Household Goods & Home Construction 3.8
Nonlife Insurance 3.3
Travel & Leisure 3.2
Food & Drug Retailers 2.9
Gas, Water & Multiutilities 2.7
Mining 2.4
General Retailers 1.7
Forestry & Paper 1.4
Personal Goods 1.2
Electronic & Electrical Equipment 1.0
Chemicals 0.9
Software & Computer Services 0.6
Construction & Materials 0.5
Net Current Assets 5.7
------
Total 100.0
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Ten Largest Equity Investments
Company Total assets (%)
Royal Dutch Shell 'B' 6.4
British American Tobacco 5.1
RELX 4.6
Unilever 4.1
BP Group 3.9
GlaxoSmithKline 3.8
John Laing Group 3.8
Lloyds Banking Group 3.7
AstraZeneca 3.7
Prudential 3.2

   

Commenting on the markets, Adam Avigdori and David Goldman representing the Investment Manager noted:
Equity markets globally experienced a sharp sell-off during October and the UK was no exception, with the FTSE All-Share falling -5.2%, its worst monthly return in over three years. There were many factors at play which could have arguably triggered the correction; rising bond yields with the US 10-year hitting 3.25%, concerns around the pace of US interest rate rises, ongoing trade conflict between the US and China, worries over the outlook for global growth and of course, ongoing Brexit related concerns. Within the UK market the falls were most felt further down the market cap spectrum, with small and mid-caps underperforming larger companies. There was also a notable rotation away from highly rated shares and higher momentum shares (those that have performed well), resulting in growth underperforming value. At a sector level Industrials and Technology were weak given the heightened concerns around a slowdown in global growth, meanwhile Utilities outperformed given the defensive characteristics of this sector. Chancellor Philip Hammond announced the last Autumn Budget before the UK leaves the EU, where he claimed the era of austerity was coming to an end, however the equity market reaction was broadly muted given the elevated concerns driving market movements.

Over the month the Company delivered a return of -7.6%, underperforming the FTSE All-Share which delivered a return of -5.2%.

Patisserie Holdings was the largest detractor for the month as it became evident that an investigation has been opened with regards to fraudulent accounting activity. The Chief Financial Officer, Chris Marsh, has resigned. A successful Placing raised £15.7m and CEO Luke Johnson has invested £20m of his own money to into the company. The shares remain suspended and cannot be traded. Superdry suffered a profit warning due to the hot weather adversely impacting sales for their autumn/winter product range. Additionally, the company has been impacted by their foreign exchange hedging mechanisms not providing the same degree of protection as expected. The company is investing capital into the business to accelerate growth and the transition online. Inchcape has been impacted by weakness in cyclical businesses during the month, particularly in the automotive industry. It now trades on a low valuation which we believe to be below intrinsic value. The company has strong free cash flow and good discipline in returning this to shareholders.

John Laing Group, the top contributor for the month, saw its shares remain flat for the month whilst markets tumbled. The business is well exposed to the infrastructure investment trends we are seeing globally. United Utilities, the top contributor for the month, benefitted from a trading statement that was in line with expectations. The shares trade on a discount to asset value and the move into more defensive names benefitted the water utility company. Associated British Foods continues to roll out its Primark stores internationally, with encouraging trading coming from the US helping to offset some weakness in the UK and Europe. The latest statement from the company highlighted upgrades in their Ingredients and Grocery businesses.

During the month we purchased a new position in Whitbread, a high-quality domestic company with less leverage and superior margins than its peers. It is supported by structural growth tailwinds as they roll out budget hotels and continue to take market share. We have added to positions including in RELX, Tesco, Standard Chartered and United Utilities. We have reduced exposure to HSBC, Admiral, Mondi and Elementis and sold our holding in CRH.

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 Fed) 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. 
9 November 2018

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