Investment trusts

About this investment trust

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The Company aims to provide growth in capital and income over the long term through investment in a diversified portfolio of principally UK listed equities.

Why choose it?

With longer lifespans and greater demands on retirement funds, investors need a steady source of income and growth. This conviction-led portfolio delivers exposure to a balanced range of sectors and company shares, focused on the UK, which have the potential to deliver capital growth and a growing dividend income.

Suited to…

Investors targeting a steady income that grows over time, useful for retirement planning. The Trust also aims to grow investors’ capital in the longer term.

What are the risks?

• Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
• Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.
• The Trust’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Trust may not be able to realise the investment at the latest market price or at a price considered fair.
• Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Useful information

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Fees & Charges

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The Board’s approach to ESG

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Environmental, social and governance (ESG) issues can present both opportunities and risks to long-term investment performance. These ethical and sustainability issues are a key focus of the Board, and your Board is committed to a diligent oversight of the activities of the Manager in these areas. The Board believes effective engagement with management is, in most cases, the most effective way of driving meaningful positive change in the behaviour of investee company management. The Board believes that BlackRock is well placed as Manager to fulfil these requirements due to the integration of ESG into its investment processes, the emphasis it places on sustainability, its collaborative approach in its investment stewardship activities and its position in the industry as one of the largest suppliers of sustainable investment products in the global market.

Sustainable investing: BlackRock’s approach

Sustainability is BlackRock’s standard for investing, based on the investment conviction that integrating sustainability can help investors build more resilient portfolios and achieve better long-term, risk-adjusted returns. BlackRock believes that climate change is a defining factor in companies’ long-term prospects and that it will have a significant and lasting impact on economic growth and prosperity. BlackRock believes that climate risk equates to investment risk and this will drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in turn is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade.

Environmental, Social and Governance: integration into BlackRock’s investment management process

Environmental, Social and Governance (ESG) investing is often conflated or used interchangeably with the term “sustainable investing.” BlackRock has identified sustainable investing as being the overall framework and ESG as a data toolkit for identifying and informing our solutions. BlackRock has defined ESG Integration as the practice of incorporating material ESG information and consideration of sustainability risks into investment decisions in order to enhance risk-adjusted returns. BlackRock recognises the relevance of material ESG information across all asset classes and styles of portfolio management. ESG information and sustainability risks are included as a consideration in investment research, portfolio construction, portfolio review, and investment stewardship processes. The Investment Manager considers ESG insights and data, including sustainability risks, within the total set of information in its research process and makes a determination as to the materiality of such information in its investment process. ESG insights are not the sole consideration when making investment decisions and the extent to which ESG insights are considered during investment decision making will also be determined by the characteristics or objectives of the Company. The Investment Manager’s evaluation of ESG data may be subjective and could change over time in light of emerging sustainability risks or changing market conditions. This approach is consistent with the Investment Manager’s regulatory duty to manage the Company in accordance with its investment objective and policy and in the best interests of the Company’s investors. The Investment Manager’s Risk and Quantitative Analysis group will review portfolios to ensure that sustainability risks are considered regularly alongside traditional financial risks, that investment decisions are taken in light of relevant sustainability risks and that decisions exposing portfolios to sustainability risks are deliberate, and the risks diversified and scaled according to the investment objectives of the Company.

BlackRock’s approach to ESG integration is to broaden the total amount of information the Investment Manager considers with the aim of improving investment analysis and understanding the likely impact of sustainability risks on the Company’s investments. The Investment Manager assesses a variety of economic and financial indicators, which may include ESG data and insights, to make investment decisions appropriate for the Company objectives. This can include relevant third-party insights or data, internal research or engagement commentary and input from BlackRock Investment Stewardship.

ESG integration does not change the Company’s investment objective or constrain the Investment Manager’s investable universe and does not mean that an ESG investment strategy or exclusionary screens has been or will be adopted by the Company. Similarly, ESG integration does not determine the extent to which the Company may be impacted by sustainability risks.

Investment stewardship

BlackRock undertakes investment stewardship engagements and proxy voting with the goal of protecting and enhancing the long-term value of clients’ investments for relevant asset classes. In our experience, sustainable financial performance and value creation are enhanced by sound governance practices, including risk management oversight, board accountability, and compliance with regulations. We focus on board composition, effectiveness and accountability as a top priority. In our experience, high standards of corporate governance are the foundations of board leadership and oversight. We engage to better understand how boards assess their effectiveness and performance, as well as their position on director responsibilities and commitments, turnover and succession planning, crisis management and diversity. For further detail regarding BlackRock’s work on investment stewardship please refer to the website here.

Engagement with portfolio companies in 2020

The Board receive periodic updates from the Manager in respect of activity undertaken for the year under review. Over the year to 31 October 2020, 94 total company engagements were held with the management teams of 36 portfolio companies, representing 75% of the portfolio at 31 October 2020. To put this into context, there were 48 companies in BlackRock Income and Growth Investment Trust plc’s portfolio at 31 October 2020 (31 October 2019: 48). In total 1,018 proposals were voted on at 59 shareholder meetings.

Fund manager commentary

31 March 2024

Please note that the commentary below includes historic information in respect of index performance data and the Company’s NAV performance.

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results.

Performance Overview:

The portfolio had returned by 4.83% during the month net of fees, performing broadly in-line with the FTSE All-Share which returned by 4.75%.

Market Summary:

Global equity markets nudged higher in March as the dovish backdrop set up by the world’s major central banks helped boost risk sentiment.

In the US, the Federal Reserve (Fed) signalled its inclination to cut rates, assuaging market concerns by keeping the three rate cuts pencilled in for the year unchanged, even as it revised up growth and inflation forecasts. As such, the S&P 500 hit a record high as investor sentiment continued to remain positive. The economy added 275,000¹ jobs in February as an uptick in immigration added to labour supply, enabling the economy to sustain a higher pace of job creation than estimated.

In the Eurozone, inflation slowed to 2.6%² year-over-year in February, the lowest rate in three months but still above the European Central Bank’s (ECB) target of 2%. The European Central Bank maintained its interest rates at historically high levels during its March meeting, as policymakers balanced concerns over a looming recession with persistently elevated underlying inflationary pressures.

In the UK, the Bank of England (BoE) kept interest rates on hold. The inflation rate fell sharply in February with headline inflation lower than forecasted at 3.5%, the lowest rate since 2021, while core inflation fell to 4.5% from 5.1%. The Office for National Statistics reported the consumer prices index rose by 3.4% in the previous month up from 4% year-on-year³. The FTSE All Share rose 4.75% with Basic Materials, Oil & Gas and Financials as the top performing sectors.

Stock comments:

Reckitt Benckiser was the top detractor after the Consumer Shares in Reckitt Benckiser performed poorly during the month. The company’s results for 2023 were worse than expected: volume weakness was compounded by a product recall and an understatement of trade spend in the Middle East led to a further shortfall. The news flow deteriorated with an adverse jury ruling in the US; whilst the company has staunchly defended its position and intends to appeal, we have seen that litigation can create an overhang for many months and the shares are likely to remain optically cheap whilst this remains. Shares in RELX fell back after previous strength post strong results. Hays was weak during the month as cyclical concerns on recruitment rose.

3i’s annual update on the performance of Action, the European discount retailer, provided welcome news on both current trading and its future prospects. Volume growth continues to exceed expectations as customers benefit from reinvestment in prices and as the group continues to open stores in existing and new countries. Margins remain robust and the group is able both to sustain strong like-for-likes and growing dividends to its shareholders. Next produced strong financial results and underpinned confidence in the year ahead with the structural challenges of recent years now beginning to fade. The Retail channel has become less of a headwind as competitors have closed stores; Online continues to grow with recent investments in capacity and capabilities offering opportunities to expand margins. Phoenix was strong during the month following better than expected results. The company released better guidance than expected with more focus on de-leverage which allayed market concerns.

Changes:

During the period, we purchased a new holding in Weir Group. This is mining equipment supplier with a well-established installed base which generates significant aftermarket revenue and profit. The outlook for mining capex looks reasonable, especially in their key commodities (copper, gold, iron ore) which should allow Original Equipment orders to improve from a low base. Attractive free-cash-flow generation and modest valuation with a robust balance sheet offers a very attractive risk reward if the company is able to deliver on mid-to-high single-digit growth and 20% margin.

Our investment case for Watches of Switzerland has been impacted by several factors including the weaker-than-expected demand recovery in China along with the Rolex acquisition of Bucherer. At this point, we believe there are more questions than answers for the company, therefore, we have decided to exit the position.

Reckitt Benckiser was reduced following the emergence of potential litigation. Unfortunately, this is an overhang that is likely to persist for some time and we moderated position to manage this expected dynamic.

Outlook

Equity markets entered 2024 in a buoyant mood following a strong and broad rally in the latter part of 2023. The outlook, and optimism, is a far cry from 12 months ago, when supply chains were hugely disrupted, and inflation was double digit and well ahead of central banks’ targets prompting rapid and substantial interest rates hikes despite an uncertain demand environment. Despite this, equities had one of their best years on record outperforming bonds with double digit increases, in dollar terms, across most of the developed world and some emerging markets. China was the surprise negative in 2023, with no noticeable COVID re-opening recovery and lacklustre growth despite government attempts to stimulate.

As we pass the first quarter of 2024, markets have shifted to ‘goldilocks’ territory whereby slowing inflation has signalled the peak for interest rates while broad macroeconomic indicators that have been weak are not expected to deteriorate further. This is also helpful for the cost and availability of credit which has recently improved having been deteriorating through most of 2023. We believed that this quantum of cuts will prove to be overly aggressive without a significant deterioration in the economy which we don’t expect. That said despite these expectations moderating significantly during Q1, stock markets have continued to make progress in the developed world. Labour markets remain resilient for now with low levels of unemployment while real wage growth is supportive of consumer demand albeit presenting a challenge to corporate profit margins.

Notably in 2024, geopolitics will play a more significant role in asset markets. This year will see the biggest election year in history with more than 60 countries representing over half of the world’s population, c.4 billion people, going to the polls. While most, such as the UK’s are unlikely to have globally significant economic or geopolitical ramifications, others, such as the US elections in November, could have a material impact. We believe political certainty may 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 particular election outcome, we are mindful of the potential volatility and the opportunities that may result.

As we have commented several times before, 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 the buyback yield of the UK, at the end of 2023 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 as earnings estimates moderate, we know that in the course of time risk appetite will return and opportunities are emerging. As we have stated in previous commentaries, we have added new positions initiated throughout the year in both UK domestic and midcap companies.

We continue to focus the portfolio on potentially cash generative businesses with 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 may create; by seeking to identify the companies that strengthen their long-term prospects as well as attractive turnarounds situations.

¹Source: Financial Times, 8 March 2024. https://www.ft.com/content/c0d37d54-846b-45bf-81fb-3c32d89a8cda
²Source: Financial Times, 1 March 2024. https://www.ft.com/content/25958fcd-14ed-4aa3-8931-5773871fcff8
³Source: Financial Times, 20 March 2024. https://www.ft.com/content/9f31261e-7d10-4963-b652-9b96822822bd

Unless otherwise stated all data is sourced from BlackRock as at 31 December 2023.

Any opinions or forecasts represent an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results.

This information should not be relied upon by the reader as research, investment advice or a recommendation.

Risk: : Reference to the names of each company in this communication is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies.

Portfolio manager biographies

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Adam Avigdori, Director, is co-manager of the BlackRock Income and Growth Investment Trust plc, and is a member of the UK Equity Team. Adam joined BlackRock in 2001 and is responsible for managing UK equity portfolios covering the real estate and construction sectors. Adam has a degree in management sciences.

David Goldman, CFA, Director, is co-manager of the BlackRock Income and Growth Investment Trust plc, and is a member of the UK Equity Team. David joined BlackRock in 2004 and is responsible for managing UK equity portfolios covering the support services sectors. David has a degree with first class honours in economics.

Board of directors

Graeme Proudfoot (Chairman) (appointed 1 November 2019) spent his executive career at Invesco, latterly as Managing Director, EMEA and CEO of Invesco Pensions. Mr Proudfoot joined Invesco in 1992 as a legal advisor and held various roles within the Invesco Group, before moving to take responsibility for a number of businesses in the UK, including Invesco’s investment trust business which he led from 1999 until his retirement from Invesco in 2019. Mr Proudfoot began his career at Wilde Sapte, Solicitors, practising as a corporate finance lawyer in London and New York.

Nicholas Gold (appointed 17 December 2008) is an experienced investment banker with over 36 years’ advisory experience across a wide range of industries and jurisdictions. He retired as the Managing Director responsible for closed-end fund corporate finance at ING Bank N.V. in 2008. Mr Gold is a chartered accountant and a solicitor. He was formerly a member of the Royal Academy of Dramatic Art Council and chairman of its commercial arm, RADA Enterprises. He is a Special Adviser to Pottinger Co Pty Limited.

Charles Worsley (appointed 19 April 2010) has over 25 years’ experience in property management and has been a shareholder of the Company since its launch. Mr Worsley has formerly been a director of retail and media companies.