BlackRock Income and Growth buys back shares to manage discount – BlackRock Income and Growth (BRIG) has published its half-year report for the six months to 30 April 2021. During the period, the trust’s net asset value per share returned 27.1%, compared with its benchmark, the FTSE All-Share Index, which returned 28.5%. BRIG’s share price however was up 16.2%. The board has announced an interim dividend of 2.6p per share which will be paid in September.
Over the six months under review, the trust’s shares traded at an average discount of 7.6% to cum income NAV per share, and there remains a discount of 4.4% as at 22 June 2021. As a result, the board utilised its share buyback programme and a total of 618,635 ordinary shares were bought back and cancelled at an average price of 174.1p and for a total consideration of £1,077,000. No shares were issued or sold from treasury during the period under review.
Statement from the manager:
MARKET REVIEW
The end to 2020 was marked by the turbulence that characterised an extraordinary year. Politics were, as expected, a significant factor as Joe Biden won the US Presidential Election after a sustained period of inconclusion and Brexit negotiations provided a degree of uncertainty, however, the progress of the pandemic and its ramifications were the major source of market movements. Investors were both buoyed by the strong clinical data from a number of vaccines and alarmed by the impact of repeat waves of the virus and its mutation. The announcement on 9 November 2020 of the data from the Pfizer/BioNTech vaccine showing greater than 90% efficacy generated remarkable and rapid market moves; equity markets soared, momentum reversed at a rate never previously seen and the value factor rallied strongly.
December finally delivered positive progress on Brexit, with an agreement on trade terms for goods. Small and mid-cap indices outperformed the FTSE 100 in the fourth quarter as their domestic bias benefited from the progress in Brexit negotiations. Positive news on Brexit was offset by an alarming increase in the incidence of the COVID-19 virus as several new variants proved particularly contagious. This triggered a renewed lockdown in the UK, initially eased at the start of March with reopening of schools, and further eased in April with the reopening of non-essential retail.
Global stock markets made a strong start to 2021 as vaccination programmes and stimulus-boosted optimism around the recovery trumped concerns around virus variants. Rising bond yields undermined longer-duration sectors and a rebound in cyclical earnings continued to drive a rally in value-related names. Reflation risks were placed under the spotlight as commodity prices appreciated. Risk on sentiment swelled towards the end of the period, further bolstered by a robust corporate earnings season, strong global economic data releases and increasing COVID-19 inoculation.
While the UK and US made a strong start to virus inoculation and continued strong vaccine deployment throughout the period, Europe’s vaccine rollout had a slower start, however, but later significantly improved. At the end of the period, concerning virus news came from India where the country grappled with soaring COVID-19 cases and shortages of medical resources.
The FTSE All-Share benchmark rose 28.5% over the six months to 30 April 2021 with Basic Materials, Oil & Gas and Telecommunications as top outperformers.
CONTRIBUTORS AND DETRACTORS TO PERFORMANCE
As the market rotation at the end of 2020 continued into 2021, the six-month period to 30 April saw a shift into more cyclical sectors and stocks as confidence grew around vaccine progress and increased stimulus. Sectors including Housebuilders, Industrials, and Travel & Leisure were beneficiaries of this shift and more defensive sectors including Consumer Staples and Health Care lagged.
Housebuilder, Taylor Wimpey, was the top contributor to the portfolio during the period. Halifax has reported average house prices are +8.2% year-on-year in April. High demand levels, driven by a reassessment of space requirements post lockdown and ongoing support from the stamp duty holiday are combining with a tight supply environment. Grafton was another top contributor as strong performance continued and the company lifted profit guidance. Another Industrial, Electrocomponents, performed well as recovery in the company’s end markets and ongoing market share gains powered accelerated growth. After facing unprecedented challenges on the back of global lockdowns in early 2020, the Travel & Leisure sector rallied strongly after the announcement of effective COVID-19 vaccines. As a result, companies including hotel group, Whitbread and airport and train station caterer, SSP, fared well during the period after having been previously severely impacted by COVID-19.
As a quality business with a defensive earning stream, Reckitt Benckiser underperformed and was the top detractor from the portfolio during the period; the market favoured more cyclical companies despite Reckitt Benckiser delivering strong results at the end of the period. Other defensive names such as Rentokil Initial, Rightmove and AstraZeneca also detracted from the portfolio as shares lagged. One key stock-specific disappointment during the period was insurer, Hiscox, which issued a poor trading statement that highlighted further investments needed within its retail business. Our underweight positioning to the Basic Materials sector and lack of holding in Glencore and Anglo American also detracted from performance given the strength in the sector during the period.
OUTLOOK
Despite the continuation of COVID-19 lockdowns globally, economic activity has been less impacted as consumers and corporates have adapted their behaviours since the development of effective vaccines. Looking ahead, the focus is firmly on the cyclical recovery buoyed by ongoing monetary and fiscal support overwhelming concerns around virus variants.
As economic activity rebounds this has caused some strains on supply chains with specific industry shortages as well as building inflationary pressures including significant increases in commodity prices versus twelve months ago. The prospect of higher inflation has driven bond yields higher with central bankers appearing to indicate willingness, for now, to refrain from any material rise in interest rates. We are also cognisant of the evolution of relationships between China and the West and the potential impact on industries and shares.
Turning to the UK specifically, the recently published Bank of England report showed continued momentum in UK Gross Domestic Product with expected growth the fastest in post-war records as the UK recovers from an extremely weak COVID-19 impacted 2020. This is against a backdrop of UK valuations that have been extreme, trading at multi-decade lows versus other international markets with a recent flurry of merger and acquisition deals highlighting the dispersion and value on offer in the FTSE. We continue to believe that this dispersion should narrow given the increased certainty and reduced risk regarding Brexit in addition to the UK’s strong vaccination effort.
We view the dividend outlook for the UK market with renewed optimism as we expect dividends, in aggregate, to be more resilient and to grow faster in the future as those companies that had been overdistributing for a number of years reset their dividends during the pandemic. Resilience was a crucial feature of the Company and its underlying holdings in 2020 and while this will still be important in 2021, we are excited by the approaching economic recovery and the opportunity to deliver strong capital and dividend growth for our clients over the long-term.
BRIG : BlackRock Income and Growth buys back shares to manage discount