BlackRock Income & Growth (BRIG) fund managers have corrected their underweight to aerospace and defence stocks after this was a main factor in the £43m investment trust underperforming in the year to 30 October.
Annual results showed an underlying investment return of 14.3% against the 22.5% total return from the FTSE All-Share index. The latest five-year data shows the trust’s 62% total growth in net asset value since the start of 2021 is 15% behind the benchmark’s 77%.
At interim results last year, BlackRock’s Adam Avigdori and David Goldman had already admitted that a lack of Rolls-Royce (RR), BAE Systems (BA) and Melrose (MRO) had caused the portfolio to lag the FTSE All-Share index after their shares soared in response to rising defence spending.
In annual results today, the pair said a rethink by European countries of their military capabilities in light of US President Trump’s anti-NATO rhetoric had led to a “material change in the medium and long-term growth potential of these businesses”.
In the second half they purchased the three stocks and went on to buy Babcock (BAB) as well to take the trust’s weighing to aerospace and defence to 5.3% making it the trust’s sixth biggest sector. Its top three sectors are led by banks (12.7%), where Lloyds (LLOY) was a star surging 80% and Standard Chartered (STAN) performed strongly. Pharmaceuticals (8.1%) and oil and gas producers (5.8%) lie in second and third place.
Of Babcock, they said the company “appears well placed to deliver further upgrades driven by international marine orders, growth in its nuclear division and exposure to NATO’s rearmament and training initiatives.”
Stock upsets also weighed on returns with Tate & Lyle (TATE) hurt by tariffs, weaker US consumer confidence and falling corporate customer demand. The managers reduced the position but remained invested as the company moves to become a specialist food services business.
There was a different response to WH Smith (SMWH) where the managers sold out after the travel store group uncovered a significant “overstatement” of profits in its North American division and its shares plunged 40% in one day.
Elsewhere, shares in warehouse developer Segro (SGRO) suffered from subdued UK growth and political risk, Avigdori and Goldman said, while RELX (RELX), the academic publisher retreated on excessive investor concerns over the impact of artificial intelligence.
They were less convinced the market was wrong to worry about AI disintermediation at education publisher Pearson (PSON) and sold out.
Dipping into revenue reserves equal to over one year’s dividends, the trust’s board declared a 5p final dividend to take the total payout for the year to 7.7p. This 1.3% increase was supported by 7.23p of revenue per share, up from 7.2p in the previous year, and puts BRIG on a 3.5% dividend yield.
Our view
James Carthew, head of investment company research at QuotedData, said: “A pretty poor set of results from BRIG this morning, which is one of the smallest trusts in the UK equity income sector, trades on the widest discount (12%), and offers one of the lowest dividend yields. The margin of underperformance of the FTSE All-Share since BlackRock’s appointment in 2012 has widened to 13 percentage points. Even the dividend growth number was disappointing, well below the rate of inflation, and funded in part from the revenue reserve. Perhaps a rethink is needed.”
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