BRIG Blackrock Income And Growth Investment Trust Plc

BLACKROCK INCOME & GROWTH INVESTMENT TRUST PLC (LEI:5493003YBY59H9EJLJ16)

All information is at 30 November 2024 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 +2.2% during the month net of fees, performing in-line with the FTSE All-Share Index which returned +2.5%.1

Market Summary:

Led by the US, equity markets rose in November following the results of the US Presidential Election. The S&P500 Index rose by 5.7%, logging the best month of 2024 so far as the post-election optimism lifted markets broadly.

In the UK, the Bank of England reduced interest rates by 25bps, lowering the benchmark rate from 5% to 4.75%, a move widely anticipated by markets. Meanwhile, the UK's Consumer Prices Index revealed inflation rose by 2.3% in the 12-months to October2, driven by a surge in gas and electricity prices as the energy cap went up on 1 October.

The FTSE All-Share returned +2.5% in November, whilst the FTSE100 returned +2.6%. The top-performing sectors during this period were technology, telecommunications, and financials. Shares in health care companies slid on the announcement of Donald Trump's choice of vaccine sceptic, Robert F Kennedy Jr, as US Health Secretary concerned investors.

Stock comment

3i was amongst the strongest positive contributors to the fund during the month as continued positive trading from its largest asset, Action, buoyed investor expectations. The strong like-for-like growth and space rollout continues to offer a highly attractive return despite the significant rise in the shares over the past 3 years.

Modest contributions were seen from Pearson and Spirax; both of which rose during the month as investors reassessed their expectations upwards going into 2025. Mastercard benefited from the rising optimism seen in the US market following the election. Not owning Glencore and Diageo also modestly contributed as both underperformed.

In terms of detractors, Ashmore fell during the month post the US election as investors feared that US exceptionalism and a stronger dollar would weigh on emerging market flows. Similarly, SGS, the Swiss testing business, was weaker as concerns that potential tariffs would reduce exports and therefore, revenues.

Big Yellow Group disappointed investors during the month with a slightly weaker half where disruption caused by concerns around the budget led to weaker than expected demand.  Although trading has stabilised since, business confidence ahead of the budget was impacted and decisions were delayed. Sage, which the portfolio does not own, performed very strongly following a larger than expected buyback and good trading. As a result of not owning it, this detracted from performance.

Changes

We added to positions in Lloyds and Travis Perkins during the month. Lloyds has been weak given the concerns on motor finance redress. We believe the strong capital position at Lloyds allows it flexibility to deal with these issues and continue to generate excess free cash flow. We modestly increased the Travis Perkins position following a good meeting with the new management team. There is unlikely to be a significant turnaround in the near-term, however, we believe there is an attractive medium-term opportunity for profitability and cashflow to be rebuilt.

We funded these purchases by reducing the Taylor Wimpey position; managing our exposure to UK domestic and interest rate sensitives. We also modestly reduced the Hammerson position for similar reasons as we see greater upside elsewhere.

Outlook

Global developed equity markets have continued their broad rallies throughout 2024 following a trend that started in late 2023. Following a lengthy period of uncertainty through the COVID-19 era, with sharply rising interest rates and inflation, equity markets have now settled down. Having passed peak interest rates, and with stable labour markets and broadly stable macroeconomic conditions, equity markets have moved to goldilocks territory. The promise of greater fiscal spending in the US, China and parts of Europe have served to buoy equity markets further, although have contributed to rising government bond yields as the spectre of fiscal deficits and inflationary pressures loom large for bond investors.

More recently, following a period of extended economic weakness, the Chinese Government begun a more concerted accommodative campaign aimed at accelerating economic growth and arresting deflationary pressures. Recent policy moves have sought to improve and encourage lending into the real economy with a sizable fiscal easing programme announced. Whilst the scale of the easing is large, western markets and commentators have remained sceptical of its impact and effectiveness whilst awaiting evidence to the contrary. In the UK, the recent budget promised and delivered a large-scale borrowing and spending plan whilst sizable increases in minimum wage and public sector wage agreements likely support a brighter picture for the UK consumer. UK labour markets remain resilient for now with low levels of unemployment while real wage growth is supportive of consumer demand albeit presents a challenge to corporate profit margins.

With the UK's election and budget now over, the market's attention will focus on the subsequent policy actions of the new US administration under Donald Trump. The global economy has benefited from significant growth and deflation `dividend' it has received from globalisation over the past decades. The impact of a more protectionist US approach and the potential implementation of tariffs may challenge this dividend. We would anticipate asset markets to be wary of these policies until there is more clarity as we move through 2025. Conversely, we believe political certainty, now evident in the UK, will be helpful for the UK and address the UK's elevated risk premium that has persisted since the damaging Autumn budget of 2022. Whilst we do not position the portfolios for any election or geopolitical outcome, we are mindful of the potential volatility and the opportunities that may result, some of which have started to emerge.

The UK stock market continues to remain depressed in valuation terms relative to other developed markets offering double-digit discounts across a range of valuation metrics. This valuation anomaly saw further reactions from UK corporates with a robust buyback yield of the UK market. Combining this with a dividend yield of 3.7% (FTSE All Share Index yield as at 31 October 2024; source: The Investment Association), the cash return of the UK market is attractive in absolute terms and comfortably higher than other developed markets. Although we anticipate further volatility ahead, we believe that in the course of time risk appetite will return and opportunities are emerging. We have identified several potential opportunities with new positions initiated throughout the year in both UK domestic and midcap companies.

We continue to focus the portfolio on cash generative businesses that we believe offer durable, competitive advantages as we believe these companies are best placed to drive returns over the long term. Whilst we anticipate economic and market volatility will persist throughout the year, we are excited by the opportunities this will likely create; by seeking to identify the companies that strengthen their long-term prospects as well as attractive turnaround situations.

1Source: BlackRock

2Source: Office of National Statistics

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2024#:~:text=in%20October%202023.-,The%20Consumer%20Prices%20Index%20(CPI)%20rose%20by%202.3%25%20in,of%2011.1%25%20in%20October%202022.

18 December 2024