The information contained in this release was correct as at 30 September 2021. 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 2021 and unaudited.

Performance at month end with net income reinvested

BlackRock took over the investment management of the Company with effect from 1 April 2012.

At month end

Sterling:

Commenting on the markets, representing the Investment Manager noted:

Performance Overview:

The Company returned -1.7% during the month, underperforming the FTSE All-Share which returned -1.0%.

Market Summary:

Global equity markets fell during September as sustained supply chain disruption led to faster input price inflation and markets grappled with Chinese developer, Evergrande facing a potential debt crisis. COVID’s impact on global growth rose once more as some countries reinstated restrictions in response to Delta’s rapid spread even as vaccinations gained momentum.

Fuel shortages in Britain and power curbs in China’s industrial heartland put a spotlight on insufficient energy supplies. Brent oil prices touched $80/barrel for the first time since late 2018, while European natural gas prices posted all-time highs after rising 11% late in the month¹.

Moderately hawkish signals from both the Federal Reserve and Bank of England prompted a jump in bond yields and pulled forward the market-implied timing of rate hikes.

Employment sentiment in the UK improved and returned to pre-pandemic levels; some of the groups that were hardest hit by the pandemic, e.g. younger workers and hospitality sector employees, saw a rapid recovery. UK house prices hit record highs as house buyer activity persisted despite the fading of the stamp duty holiday. Support came from structural factors, notably increased home working.

The FTSE All Share fell -1.0% with Oil & Gas and Health Care as top performing sectors while Technology, Basic Materials and Telecommunications underperformed. 

Stocks:

The portfolio underperformed during the period despite the release of recent strong earnings statements by many holdings. It goes without saying that there have been fairly unique conditions in society and in stock markets over the last 18 months. The various COVID ‘waves’, subsequent lockdowns and re-openings have created considerable confusion about the sustainability of behaviours, and ultimately, earnings across the market. The subsequent withdrawal of large-scale government support and emerging inflationary trends has exacerbated this confusion.  As we enter this period of ‘normalisation’, we would expect there to be significant dispersion, both across the market and within sectors, as companies’ true earnings power is unveiled. A number of positions in the portfolio have been negatively impacted by these concerns. Smith & Nephew has been affected by the lack of hospital space for Orthopaedic operations during most of 2020 and 2021. We would expect, as we pass the crisis, hospital capacity and therefore sales will recover strongly here with the company extremely well placed and well financed to benefit from this. In contrast, Moonpig, a more recent detractor during the month despite upgrading forecasts consistently since its IPO, has been impacted by the market’s concerns that re-opening would see less card shopping online. We believe this is well understood and that the company is in a strong position to continue to grow market share and revenues. Indeed, their revenue upgrade during September showed their continued success in keeping newly acquired customers engaged with the platform. Taylor Wimpey was another detractor from the portfolio after falling back post the previous month’s highs as investors showed growing concern around the future of the UK housing market as government support ends.  We believe the housing market is well underpinned and again, Taylor Wimpey remains extremely conservatively financed and well placed to grow their dividend considerably over the next 12-24 months.

Hays was again a top contributor during the period after issuing a strong trading update; we have added to the holding. Shares in Legal & General have held up against the backdrop of rising rates and Reckitt Benckiser shares have come back from previous period lows; both companies were also top contributors to the portfolio.

Portfolio Activity:

We have seized opportunities to either add to holdings or sell holdings where we believe the market over or under-estimated the impact of Covid. An example of this is our addition to Hays as we feel the recruitment market will be buoyant for longer as furlough ends and employee mobility and wage inflation picks up.

We purchased a new holding in Adobe which is exposed to the structural shift towards digitalisation. The group’s software enables companies to enhance their digital capabilities with a particular focus on creativity, document handling and cloud capabilities. Adobe is a fast growing, capital light, with high returns where we believe that the duration and quantum of growth has been underestimated by the market. We also participated in the Initial Public Offering of Oxford Nanopore which offers DNA genome sequencing technology; we see the opportunity for Oxford Nanopore to develop its market share in this fast-growing industry. We also purchased a new holding in the energy company, Drax which, in addition to its biomass and hydrogen focused power generation has also developed interesting carbon capture technology which should help the UK achieve its climate goals.

We sold our holding in European and Latin American utility, Enel, given the rising threat of increased taxation in response to rising power prices.

Outlook:

As the world approaches some sort of post-covid normalisation and economies reopen, many opportunities and risks are being presented. We are closely monitoring how earnings react to factors including the retraction of government stimulus, changes in consumer wallets and behaviours. Much like the structural change of digitisation that arose in the throes of Covid, we monitor these aforementioned factors and others for signs of other structural changes.

The growth in economic activity has caused some strains on supply chains with specific industry shortages as well as building inflationary pressures which can squeeze companies’ margins.  We continue to concentrate the portfolio on those businesses which display pricing power and thus able to protect margins over the medium and long-term. We continue to monitor the bond market to determine if the current surge in inflation is transitory or, fuelled by a more relaxed Fed, a phenomenon that may persist. We are also cognisant of the evolution of relationships between China and the West and the potential impact on industries and shares.
 

After five years under a Brexit-induced cloud, the relative position of the UK in the eyes of global investors appears to have improved, helped by the vaccination programme, and evidenced by the resurgence in takeover activity as bidders look to capitalise on the discount at which UK equities trade relative to global peers. Specifically, we’ve seen acquisitions of real assets and a desire to find unlevered free cash flow.

Amidst market normalisation, we see cash generation improving 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 the majority of companies are paying dividends once more, we note the large contribution from special dividends that may not persist.  We 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 that have delivered for the portfolio and we foresee delivering into the future. As always, we are focused on stock-specifics and selecting holdings that are best placed to perform well amidst market normalisation. At present, we feel liquidity conditions are relatively supportive and we are excited by the approaching economic recovery and the opportunity to deliver strong capital and dividend growth for our clients over the long-term.     

¹ Source: Financial Times, 28 September 2021. https://www.ft.com/content/14d4980b-8163-4359-bc4a-fb2b7f7d2c27

14 October 2021