Fund Research

BlackRock Income and Growth Investment Trust

Last update 03 October 2018
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BlackRock Income & Growth (BRIG) has twin aims of providing a rising dividend but also growth in capital over the long term. The managers have an over-riding focus on earnings growth and free cashflow. In their view, free cashflow is the fundamental backdrop for sustained dividend growth. They don’t want to see portfolio companies paying dividends “at all costs”, as they believe often this will be at the expense of future growth.

The managers employ a high-conviction approach, with the portfolio currently numbering 43 stocks. A key differentiator to many other competitor funds and/or trusts is the multi-cap approach. Using the advantages conferred by the closed-end structure, the team opportunistically ventures into the small and mid-cap (SMID) sphere, where they have particularly high conviction (currently 27% of the portfolio is in SMID stocks).

Whilst BRIG itself is relatively small with total assets of £54m, the mangers also run the £400m open-ended BlackRock UK Income Fund. The team’s portfolio turnover of c 40% p.a reflects their view that they have the luxury of being nimble, but with the huge resources of BlackRock behind them. BRIG’s key differentiating factors relative to the OEIC is the gearing facility, and an extended ability to buy small-caps.

Having formally ratified the investment process in 2013, the team got off to a very strong start outperforming the benchmark by a considerable margin over the first couple of years. In 2016 they gave back some of this performance thanks to their underweight in miners, but since then have broadly kept up with the benchmark – not a mean feat given its strength.

At the time of writing, the shares yield 3.3%, which is below the average of the peer group. However, in terms of revenue generation, the team has generated earnings per share growth of 8.7% per annum since being awarded the mandate. The team believes that this is testament to their focus on cash generation, robust balance sheets and trusted management to ensure the long-term sustainability of the dividend. As a result, since 2012 the board has been able to pay a rising level of dividends, delivering a compound annual growth of 4.7% and at the same time, building up significant revenue reserves which (as at the last report and accounts) constitute a year’s dividend (6.6p per share). This means that the board has plenty of room for manoeuvre should the portfolio suffer an earnings shock.

The board has run an active discount control mechanism since 2013, which has resulted in relatively low discount volatility. As such, the trust typically trades close to NAV, and currently stands on a discount of 2.1%.

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Fund History: BlackRock Income and Growth Investment Trust

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