THE QUEST FOR INCOME AND GROWTH
Growing a portfolio and enjoying sustainable income is a challenge for retirees hoping to make the most of pension freedom and choice. BlackRock’s Adam Avigdori discusses how the BlackRock Income and Growth Investment Trust plc has the potential to overco
We have regularly seen the markets being dominated by volatility. How can you use this to your advantage?
The domestic economy faces challenges from rising inflation, low wage growth and uncertainty around Brexit and we have begun to see more conservative forecasts for growthi. For this reason, we invest in companies reliant on the UK market only where we see strong businesses with low share valuations, or businesses that are less dependent on UK economic growth. We aim to identify companies that we believe can meaningfully grow their earnings over three to five years rather than reacting to shortterm volatility in share price. We have been reassured by the earnings results that companies in the Trust have delivered so far this yearii. Please remember that past performance is not a reliable indicator of future results and the value of an investment and any income from it can fall as well as rise.
What is your view on including ‘turnaround’ companies in the portfolio to generate growth?
In September 2013 the income and growth team decided to restructure the portfolio and split it into three parts: yield and free cash flow, growth and turnaround companies. Around 70% of the portfolio is invested in companies that potentially generate attractive revenues and cash-flow and are expected to pay a growing dividend over the long-termiii. Roughly 20% of the Trust is invested in companies that have demonstrated long-term growth and could be the dividendpayers of the futureiv. The final 10% is allocated to ‘turnaround’ companiesv that in our opinion have strategic value and the potential to recover from tough times. This strategy has been a differentiator when compared with other funds in the income sectorvi.
Income is still hard to come by for investors – which companies look most promising for delivering on dividends?
Strong dividend levels have been seen across the Trust in the energy, financials and telecommunications sectors (up to 6.7% versus the Benchmark of 3.9%)vii. We continue to avoid utilities because these companies are often required to invest a lot of capital back into the business. We look to invest in companies that we believe are capable of generating sustainable free cash flow which can be used to fund dividend growth into the future and seek to avoid companies that are funding dividend growth with debt.
What impact have the UK’s freedom and choice pension reforms had on the uptake of income and growth investment trusts?
Pension scheme members are looking for ways to grow their savings while receiving a sustainable income. While a unit trust has to pay out all the income it receives to its investors, an investment trust’s board can retain some income and so maintain a consistent level of payments to investors. Please note income payments and their level cannot be guaranteed. To take advantage of BlackRock’s experience in selecting companies with the potential to deliver both income and growth, please visit here