In a portfolio update published on Wednesday, managers Adam Avigdori (pictured) and David Goldman said the trust delivered a return of -7.2% during Q1, underperforming the FTSE All-Share’s -6.9%.
The pair said some of the portfolio’s defensive names, including BAT and information and analytics provider RELX, weighed heavily on performance because of earnings downgrades from currency translation.
BAT is the portfolio’s joint largest holding at 5.5%, while RELX is fifth at 3.8%.
The update said: “RELX has faced a particular challenge in its academic journals business from a consortium of German universities but the impact of this, we believe, has been greatly overstated.
“British American Tobacco business is delivering operationally and generating revenue growth, however, the company remains highly geared, and has announced downgrades to earnings per share of 2%. Additionally, the industry is undergoing structural change which has put the shares under pressure.”
Avigdori and Goldman also said the trust’s performance was affected by not having exposure to Sky. The stock rallied on the announcement of a decline in the price being paid for Premier League football rights and Comcast’s announcement of a possible all-cash offer for the telecom giant at a premium to the existing offer from Twenty-First Century Fox.
Portfolio changes
During the quarter the pair also bought positions in Prudential and Aviva as well as in packaging and paper company Mondi. These purchases were financed through sales of holdings in Intercontinental Hotel Group, Vodafone and BAE systems.
Other additions include Astrazeneca, Unilever and Royal Dutch Shell, while reductions were made to Diageo, Sabre Insurance and BT Group.
Shares in the portfolio’s sixth largest holding, John Laing (3.6%), rose following its full year results and an announcement of a rights issue to raise £210m for future investment.
“The shares trade at a 10% discount to NAV, which we believe will grow by around 10% per annum for the next few years,” said Avigdori and Goldman.
The pair said the outlook for the UK economy is more uncertain given ongoing Brexit negotiations and the acceleration in growth seen elsewhere, but Brexit fears have provided the opportunity to own high-quality franchises at attractive valuations.
“The UK is a hugely international market that is supported by very strong corporate governance, shareholder interaction, regulation, tax and accounting laws and transparency. This renders the UK market a fantastic hunting ground for some high quality international (and domestic) franchises that chose to list on the UK market.”
The Blackrock Income and Growth Investment Trust has returned -1.1%, 10.4% and 46.3% over one, three and five years respectively, versus the IT UK Equity Income sector’s 45.1%, 15.9% and 5.1%, according to FE.
It currently trades at a 3.59% discount.
Ten largest equity investments
| Company | Total assets (%) |
| British American Tobacco | 5.5 |
| Royal Dutch Shell ‘B’ | 5.5 |
| Unilever | 4.6 |
| Lloyds Banking Group | 4.1 |
| RELX | 3.8 |
| John Laing Group | 3.6 |
| Ferguson | 3.2 |
| Rentokil Initial | 3.1 |
| BP | 3.0 |
| Astrazeneca | 2.9 |
Source: Blackrock
