BlackRock Income & Growth 20 December 2023
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Adam Avigdori and David Goldman have managed BlackRock Income & Growth Investment Trust (BRIG) since April 2012 and July 2017, respectively. Over this time, they have constructed a well-diversified, yet concentrated portfolio of around 40 stocks, reflecting their best ideas. Both managers are avid stock pickers driven by bottom-up fundamental research and remain steadfast in their investment process, refusing to change what they look for based on the latest market trend.
The managers will avoid deep value stocks, i.e. businesses that are cheap for a good reason, and unprofitable growth companies. Instead, they want to invest in businesses that they feel showcase strong balance sheets, sustainable free cash flows, discipline in capital allocation and an adherence to their ESG values, which is what delivers a higher quality bias (see Portfolio section). They view any potential and current investments under three categories, allocating roughly 70% of the portfolio to ‘income’ generators, featuring companies with sustainably high free cash flows and a growing dividend, 20% towards ‘growth’ companies and the remaining 10% to ‘turnaround’ opportunities.
BRIG has marginally outperformed the FTSE All-Share Index over the past five years, buoyed by its bias towards quality stocks, and more recently, some exposure to value stocks (see Performance section). However, there have been periods where performance has lagged, largely when style factors have solely driven the market, like the growth rally we experienced during the pandemic.
BRIG’s strong revenue reserves allowed it to maintain its dividends throughout the pandemic (see Dividend section). The trust trades on a discount of 13.7%, wider than average for the sector.
We believe BRIG offers a differentiated approach to growth and income investing. The managers avoid sector or style biases, allowing for flexibility in portfolio construction when market conditions change, and their focus on quality companies, coupled with a more cautious approach to gearing, provides a defensive element to the portfolio. The total return focus means that BRIG does not pay as high dividends as others in the sector, but we believe that its focus on dividend and capital growth should be attractive to long-term investors.
BRIG’s performance was strong at the beginning of Adam’s tenure, but amidst a volatile macro backdrop over the last five years it has struggled a bit. The investment process reflects a more balanced factor approach than most peers in the sector, meaning it’s not strongly tilted to either growth or value. Over the last five years, we’ve experienced some significant rotations in style, whereby market performance has been led by either growth or value stocks, which has meant the trust underperformed the sector. That said, having a more balanced approach than some peers has meant it has delivered better relative performance more recently (see Performance section) and over the long term. We would argue that it could be a good way to invest in troubled market environments where value and growth rotations are no longer driving performance, but quality is more important. BRIG’s discount is much wider than its historical average, so if performance continues, it could lead to the discount narrowing. This would provide investors with an extra kicker to returns and therefore could make it a compelling investment proposition for patient investors looking for exposure to the UK market.
- A higher dividend yield than the benchmark, coupled with growth prospects
- Wider than average discount could present an attractive long-term entry point for investors
- Portfolio’s quality and value investments have done well amidst the style rotation away from growth
- Higher level of gearing can magnify losses on the downside
- Small trust size limits institutional investors and liquidity
- Having a more balanced approach to style factors could mean it lags peers when either growth or value drives market performance