BlackRock Investment Trusts
Outlook for 2020

Looking ahead to 2020, five managers of BlackRock’s Investment Trusts give their view on key themes and trends for investors in the new year.

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

Roland Arnold

Roland Arnold, manager of the BlackRock Small Companies Investment Trust plc, comments on the value still to be found in small-cap companies:

“The widespread aversion to the UK market, and small and mid-cap companies in particular, continues to create significant opportunities. While equity investors struggle to see value in the UK market, investors abroad are not so shy, leading to bids for a wide variety of UK companies across the market cap spectrum, particularly from overseas corporates. With ongoing sterling weakness and low interest rates, this is a trend that we expect to continue and one which reaffirms our confidence in the value of the UK stock market.

“We have to remember that the market has become unforgiving of those companies that are priced for growth but fail to deliver. Should uncertainty persist, and as we move to the later stages of the economic cycle, we would expect investors to shelter in financially strong businesses.

“The outcome of the Brexit process remains uncertain and we continue to construct the portfolio based on bottom-up company fundamentals, rather than placing a bet on an unfathomable binary outcome.”

Stefan Gries

Stefan Gries, co-manager of the BlackRock Greater Europe Investment Trust plc, comments on opportunities within an increasingly stable European market:

“Despite the challenging conditions that continue to plague industrial markets in Europe, there are reasons emerging to be more hopeful. We have seen stabilisation in certain European markets which should be further supported by policy, both monetary and, in some select instances, fiscal. The strong fiscal position of the region, aided by lower yields, has the potential to make a meaningful difference and is complimented by a resilient consumer boasting some of the highest savings ratios in the developed world.

“While fiscal policy and falling political uncertainty could both give a boost to the region, we would caution on buying specific exposures based on macro narratives alone (e.g. ‘buy Value’). Europe continues to have areas of the market that appear to be value traps, with whole sectors suffering from falling profitability. In many cases, management teams have limited ability to turn the tide. Selectivity in the region and a focus on long-term winners underpinned by superior fundamentals could be meaningful for the overall return achieved from the region. We continue to hold a preference for well positioned luxury goods and aerospace companies and avoid cyclically and structurally challenged areas such as autos and banks.”

Emily Fletcher

Emily Fletcher, co-manager of the BlackRock Frontiers Investment Trust plc, comments on the opportunities in emerging and frontier markets, as low valuations remain extreme:

“Emerging market equities have recently started to outperform their developed market counterparts. Emerging and developed market central banks have been easing monetary policy and this has improved the liquidity environment. Given this improvement, we are positive about emerging market and frontier markets for next year and expect flows and investments to return to emerging market equities despite the macro volatility.

“Growth signals are still pointing down and corporate sentiment is deteriorating in emerging markets but improving sentiment on trade has overtaken these complicated fundamentals. Equally, a lot of stocks in emerging and frontier markets are trading at extreme low valuations – and paying attractive dividends - which is creating opportunities for long-term patient investors.

“In terms of the regional outlook, we continue to like Latin America. The sentiment on the ground in China remains mixed with consumer activity doing well but industrial and trade indicators slowing. Despite the stimulus feeding through into the real economy, sentiment is affected by trade tensions and businesses remain hesitant to invest in this environment. We remain cautious on North Asian markets, but like selective ASEAN (Association of Southeast Asian Nation) countries.”

Tom Holl

Tom Holl, co-manager of the BlackRock Energy and Resources Income Trust plc, comments on the prospects for the oil price in 2020, and the changing behaviour of energy companies:

“We expect oil prices to remain within a range of $60-$70/bbl in 2020, barring a sharp economic slowdown. On the supply-side, we expect OPEC to remain committed to supporting the oil price and expect compliance with the agreed cuts to be high.

“We’ve seen strong but not overwhelming growth from US shale in 2019, which we expect to slow markedly into 2020. The lack of available pipelines, that held back US shale growth in 2018, appears to be resolved. This should boost supply but, at the same time, US Exploration & Production (E&P) companies are now more focused on capital discipline, which should have the opposite impact.

“We have seen a marked change in company behaviour in this area of the market, where companies have moved away from being purely focused on growth to putting greater concentration on shareholder returns. We expect this trend to continue and to limit supply growth. 

“Elsewhere, geopolitical risks remain elevated. Energy equities offer investors a cheap way to hedge against this tail risk. The sector has de-rated materially in recent years and is attractively valued relative to the underlying commodity, broader equity markets and its own history. Over the next 12 months, we believe the real test for the energy sector will be maintaining focus on: free cash flow generation, shareholder returns and capital discipline. This should help to rebuild investor trust and could lead to a re-rating.”

Adam Avigdori

Adam Avigdori, co-manager of the BlackRock Income and Growth Trust plc, gives his outlook on the UK market:

“Globally, we expect the current environment of low economic growth to persist. This, supported by accommodative financial policy from central banks, has provided a benign environment for equity markets since the start of 2019. We are conscious that political uncertainty continues, most notably with US elections to come, which suggests market volatility is likely to persist.

“That said, behind this political uncertainty, the overall economic picture in the UK has improved. The employment market is strong, with underlying growth in both nominal and real wages for the first time in recent years. Combined with increasing fiscal spending, we believe the UK economic outlook is more encouraging.”

Unless otherwise stated all data is sourced from BlackRock as at December 2019.

Risk Warnings

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

Trust Specific Risks

BlackRock Energy and Resources Income Trust plc

Exchange rate risk: The return of your investment may increase or decrease as a result of currency fluctuations.

Emerging markets: Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore, the value of these investments may be unpredictable and subject to greater variation.

Mining investments: Mining shares typically experience above average volatility when compared to other investments. Trends which occur within the general equity market may not be mirrored within mining securities.

Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

BlackRock Greater Europe Investment Trust plc

Exchange rate risk: The return of your investment may increase or decrease as a result of currency fluctuations.

Emerging Europe: Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore, the value of these investments may be unpredictable and subject to greater variation.

Liquidity risk: The Fund’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Blackrock Income and Growth Investment Trust plc

Liquidity risk: The Fund’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

BlackRock Frontiers Investment Trust plc

Exchange rate risk: The return of your investment may increase or decrease as a result of currency fluctuations.

Emerging Europe: Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore, the value of these investments may be unpredictable and subject to greater variation.

Frontiers: The Company invests in a number of developing emerging markets (“Frontier Markets”). Frontier Markets tend to be more volatile than more established markets and therefore present a higher degree of risk as they are less well regulated and may be affected by political and social instability and other factors.

Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

BlackRock Smaller Companies Trust plc

Liquidity risk: The Fund’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair. 

Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Smaller companies risk: Smaller company investments are often associated with greater investment risk than those of larger company shares.

Important Information

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the fund specific risks in the Key Investor Document (KID) which gives more information about the risk profile of the investment. The KID and other documentation are available on the relevant product pages at www.blackrock.co.uk/its. We recommend you seek independent professional advice prior to investing.

The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

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 Investment Trusts listed in this document currently conduct their affairs so that their securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

Any research in this material has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This material is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

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