BlackRock Income & Growth (BRIG) is an all-cap strategy which seeks to balance its stylistic exposure whilst looking to grow both capital and income over the long term through investment in UK equities. BRIG has been run by the UK equity income team at BlackRock since April 2012.
Whilst the managers, Adam Avigdori and David Goldman, utilise a consistent stock analytical approach across BRIG and their open-ended products, they look to utilise the closed-ended structure of BRIG to incorporate less liquid, smaller, companies where they perceive superior long-term potential.
As discussed in the Dividend section, BRIG has maintained or grown its dividend every year since BlackRock took over management of the trust (financial year 2012). The trust retains sizeable revenue reserves to support the dividend in the near term but, the managers note that, in any event, they are seeing income streams starting to recover. Despite this, BRIG remains on a substantial discount relative to its own history and the wider sector.
A majority of the portfolio continues to be allocated towards ‘income generators’, part of a structural element to portfolio construction. This is one of three buckets the managers categorise holdings within. As discussed in the Portfolio section, they identify a number of themes across their portfolio at present including ‘cyclical and industrial tailwinds’, ‘undervalued domestic companies’, and ‘self-help and restructuring’, whilst avoiding highly levered companies and those facing structural challenges.
The managers have deployed a significant proportion of the trust’s current gearing facilities at present, reflecting their optimistic outlook for the UK market and the breadth of stock ideas they are identifying.
Boasting substantial revenue reserves and having seen revenue returns recover in H1 FY 2021, BRIG looks well-placed to us to grow its dividend going forward and maintain the progressive dividend policy enacted in recent years, despite the challenges facing dividend generation in the UK equity market. The managers’ focus on resilient income streams has clearly borne fruit during the crisis. Whilst the tactical adjustments to gearing made by the managers in H1 2020 proved beneficial, shareholders will be disappointed returns have lagged in the sharp market rally seen after the announcement of the successful development of COVID-19 vaccines. We suggest that shareholders view this as evidence of stylistic consistency, with the kind of ‘income generator’ companies BRIG is structurally exposed to typically lagging in this sort of environment. Retaining this allocation has been, we would suggest, consistent with the aim of targeting long-term sustainable dividend growth.
Investors can presently access this track record of dividend growth with the support of substantial revenue reserves at a significant discount to NAV. We note and welcome that the board has remained committed to intervening via buybacks despite this now making cancellation of repurchased shares more practicable than retaining in treasury.
|Reasonable yield which is well supported by revenue reserves||Gearing can amplify downside as well as magnify upside
|Closed-ended structure allows access to attractive mid and small cap opportunities without impinging on overall portfolio liquidity
||Small size of trust may make it harder to build a position for institutional investors
|New ability to invest up to 20% outside the UK enhances opportunity set
||Quality characteristics can moderate exposure to cyclical rallies