BlackRock Income and Growth Investment Trust plc

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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ESG Integration

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. The Investment Manager may incorporate sustainability considerations in its investment processes across all investment platforms. 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 ESG 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 their investment objectives and policies 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.

Sustainability risks are identified at various steps of the investment process, where relevant, from research, allocation, selection, portfolio construction decisions, or management engagement, and are considered relative to the Company’s risk and return objectives. Assessment of these risks is done relative to their materiality (i.e. likeliness of impacting returns of the investment) and in tandem with other risk assessments (e.g. liquidity, valuation, etc.).

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 or impact focused investment strategy or exclusionary screens have 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.

Fund manager commentary

Fund manager commentary

30 September 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.

Market Summary

Equity markets experienced significant volatility early in September, as concerns over the global economic slowdown and heightened tensions in the Middle East dampened investor sentiment. Weak payroll data and growing recessionary concerns in the US created broader market uncertainty¹ as the S&P500 saw its worst start to September since 1953, falling more than 4% in the first week of the month.²

Market sentiment improved during the second half of the month, as optimism surrounding rate cuts and new economic stimulus in China helped to stabilize markets, with Global MSCI equities ending the month up 2.3%¹⁰. The European Central Bank delivered its second rate cut in September, taking interest rates to 3.5%³, and the Fed announced a 50bps cut halfway through the month in an attempt to stabilize the slowing labour market in the US⁴. The Bank of England also announced that it would hold interest rates at 5% as inflation nears its target in the UK, thanks to falling energy prices⁵.

In the UK, The FTSE All-Share returned -1.3% in the month, and the FTSE 100 -1.5%, with healthcare and commodities contributing to this underperformance. Shares in the Energy sector fell sharply as oil prices fell to their lowest price all year on September 10 over concerns of weak economic data in China and OPEC+ plans to increase production in December6. Healthcare also took a hit after AstraZeneca fell by 2.4% following a disappointing lung cancer trial result⁷.

The FTSE 250 was flat in September, up 0.06% for the month, with oil and gas and technology detracting, whilst consumer goods and pharmaceuticals were the best performing sectors.

There was increased optimism surrounding UK equities in September, despite the drop in the FTSE All-Share as M&A activity continued through September. Low equity valuations and more stable political and economic outlooks saw 6 bids take place⁸. The sectors in focus were technology and real estate, where notable examples include Rightmove, whose shares saw a 24% rally on the first day following the £6.2bn takeover attempt from REA⁹. Notably, corporates have been the main acquirors, reflecting the attractiveness of UK companies due to lower valuations to international peers⁸.

Stock comments

Rio Tinto benefitted from an iron ore price rise on the final day of the month, as iron ore rose by 10% on the back of increased Chinese demand. The China stimulus package also improved investor sentiment on the company, which relies heavily on Chinese demand for iron ore. The company also paid a substantial dividend during the month. WH Smith shares rose after the company announced a £50 million share buyback following strong trading at the end of their financial year as the company benefitted from increased passenger volumes over the summer.

Ashmore reported full-year earnings, where revenue beat expectations, and announced a dividend that was well received by the market. They also benefitted from increasing improving sentiment towards Emerging Markets.

Many of the top detractors from performance included names that are not held by the portfolio including Glencore, Diageo and Rolls Royce.

Rentokil shares fell after the company delivered a profit warning early in the month, citing reduced demand in North America and poor integration of its new US branches. Oxford instruments shares were weak reflecting broader market concerns regarding their industrials and China exposure.

Changes

During the period, we purchased Hammerson. The company has recently completed the sale of its Retail Value portfolio, this simplifies the portfolio, removes debt concerns and provides the group with the ability to reinvest in what is now a more concentrated portfolio of 10 retail estates. Rents are stabilising while valuations look attractive, and Hammerson can add value by buying out its joint-venture partners. Shares trade on a c.25% discount to NAV. We added to Rio Tinto reflecting the significant stimulus from Chinese authorities and following a period of very weak relative performance.

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. China was the surprise negative in 2023, with no noticeable COVID re-opening recovery and lacklustre growth despite government attempts to stimulate.

Markets have shifted to ‘goldilocks’ territory whereby slowing inflation has signaled 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. Despite expectations for rate cuts moderating significantly, 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.

This year sees the biggest election year in history with more than 60 countries representing over half of the world’s population going to the polls. 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 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 3.5% (FTSE All Share Index yield as at 31 August 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 may 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 turnarounds situations.

¹.Source: FT, 6 September 2024 <US stocks turn in worst week in 18 months over slowdown fears (ft.com)>
².Source: MarketWatch, 9 September 2024 <S&P 500 just saw its worst first week of September since 1953, this chart shows - MarketWatch>
³.Source: ECB, 12 September 2024 <Monetary policy decisions (europa.eu)>
⁴.Source: J.P. Morgan, 19 September 2024 <September 2024 Fed Meeting: Fed Cuts Rates by Half Point to Support Economy | J.P. Morgan (jpmorgan.com)>
⁵.Source: FT, 19 September 2024 <Bank of England holds interest rates at 5% (ft.com)>
⁶.Source: CNBC, 30 September 2024 <Crude oil prices today: WTI posts third monthly loss (cnbc.com)>
⁷.Source: Reuters, 10 September 2024 <FTSE 100 falls on healthcare, energy weakness; cooling wage growth fuels rate cut bets | Reuters>
⁸.Source: Peel Hunt Research as of 02 October 2024
⁹.Source: Investors' Chronicles, 2 September 2024 <Rightmove shares soar on buyout talks - Investors' Chronicle (investorschronicle.co.uk)>
¹⁰.Source: Rothschild and co, 9 September 2024 <Monthly Market Summary -September 2024 I Rothschild & Co (rothschildandco.com)

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.