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Helal Miah
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Updated 10 Feb 2023
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Disclaimer

This is a non-independent marketing communication commissioned by BlackRock. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

  • BlackRock Income and Growth delivered NAV total returns of -2.3% in the year to 31/10/2022 (with dividends reinvested), outperforming the benchmark FTSE All Share, which fell by 2.8%.
  • The total dividends payable for the year rose to 7.3p per share, up by 1.4% on the prior year. Based on today’s market price, this equates to a yield of approximately 3.8%.
  • Revenue earnings per ordinary share were 6.77p, a fall of 4.6% compared to the previous year, therefore the uncovered dividend was partially funded by BRIG’s strong revenue reserves.  
  • There were tough trading conditions during the past financial year with geopolitical events as well as the UK government’s ‘mini-budget’ knocking investor sentiment. Despite this, the UK market provided some respite compared to global markets, benefitting from its low starting valuation and the markets rotation towards safer haven quality and value stocks. The managers’ focus on cash generative businesses with durable, competitive advantages helped deliver a small outperformance versus the benchmark.
  • Chairman of the board Graeme Proudfoot said: “Notwithstanding the headwinds faced by the UK economy, our portfolio managers have approached this challenging backdrop with prudence and balance over the 12-month period, avoiding taking large sector or style bets and with limited use of gearing in the portfolio. They also increased portfolio exposure to the resources and power sectors, seeking to add to those holdings which they believe will be beneficiaries of both rising energy costs and the UK Government’s focus on the security of energy supply following the invasion of Ukraine. They have also used their ability to invest in non-UK companies, providing a degree of diversification and additional sources of income.”

Kepler View

Adam and David run a concentrated portfolio selected through a bottom-up approach with a focus on quality. They invest in companies with strong balance sheets, sustainable free cash flows, disciplined capital allocation as well as adherence to ESG values. The bulk of the portfolio, approximately 70% is invested in income generators, with 20% in growth companies and the remainder in turnaround opportunities.

Since Adam and David took over the management of the fund, BlackRock Income and Growth’s (BRIG) performance has been roughly in-line with the benchmark, its defensive qualities and modest use of gearing has meant more resilience in BRIG’s performance during down years for the market, whilst limiting the upside in a growth orientated market.

BRIG offers investors an attractive level of income, the current dividend yield being approximately 3.8%. Its strong revenue reserves have allowed it to maintain or raise the dividend in recent years despite aggregate dividends on the market falling during the pandemic. The outlook for the near future remains uncertain but we think investors should take some reassurance from the revenue reserves which can cover approximately a year’s worth of dividends.

We believe BRIG offers a differentiated approach to income investing. The managers avoid sector or style biases (any bias is a result of the bottom-up selection process), allowing for flexibility in the portfolio construction when market conditions change. The managers do not run the portfolio on an exclusionary basis on ESG matters, believing that better outcomes can be attained for all stakeholders through engagement and guidance. We believe BRIG to be an even more compelling investment proposition now that the discount has widened close to double digits.

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