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

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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

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