Emma Wall: Hello and welcome to the Morningstar Series, Why Should I Invest with You. I'm Emma Wall and I'm joined today by Adam Avigdori, Manager of the BlackRock Income and Growth Trust.
Hi Adam.
Adam Avigdori: Hi Emma.
Wall: It has been quite a year for U.K. equities, economy, politics. What has driven returns for the Trust for you in the last 12 months?
Avigdori: Well, I think if we look – if we take a step back and look at what's driven returns globally, I think there has been three primary elements. The first I think has basically been China, so both commodities and Chinese housing, I think that's had a quite a large global effect on steel and commodity markets. And then you've seen the shale industry in the U.S. which is really been a tremendous driver of U.S. GDP and that's been probably 70% of what's driven global growth.
And really in the Trust, really what's driven our performance has been our industrial exposure which has benefited from those tailwinds. We've had some tremendous success in the consumer staples area, there has been a lot of conversations, a lot of interaction there with private equity and takeovers and M&A, and I guess thirdly just a couple of sort of nuggets in the domestic space, which should have worked well in any year that's been pretty difficult for the U.K. domestic market.
Wall: It's a contrarian view, you have, you are quite positive on the U.K. looking in 2018, both on terms of opportunities and indeed dividends, because many people are feeling pretty negative about the outlook for the U.K. next year.
Avigdori: Yeah. I think, and I totally understand why it has been a year where you know the politics has been difficult to understand. We've had a lot of nervousness obviously after Brexit. Consumers wondering what about – how they view their employment prospects, the housing market being so strong for so long and where that's going.
So, you know there is clearly a bit – a number of big questions and consumers are looking at lot of that sort of P&L and thinking, well, is it going up or down next year, and that's really defined I think how people have viewed the U.K. economy this year.
I mean, I think we'll just be a bit more nuanced. I mean I certainly don't think that things are going brilliantly and clearly the U.K is lagging a number of global markets, the U.K. economy that is. But what we do see is there are starting to be some real – some real sort of nuggets coming through, some real valuation anomalies across the domestic space.
And I think you should be as stock specific as you possibly can, but really try and face into the wind a little bit. And this I think – this market, this opportunity will take some time to come through. It may not happen in the next year or two years, but we are starting to see some valuation support and some very interesting ideas crop up.
Wall: And on that income side, because of course the Trust is income and growth, you are feeling pretty positive about dividends at the moment as well, aren't you?
Avigdori: Well I think clearly sterling fall has been a huge help for the U.K. market. You know we've got 80% of our market that's effectively a dividend euro or other currency denominated revenue stream and clearly as sterling as weakened against virtually everything, that's been a tremendous benefit.
So, yeah, dividend picture looks good and also, I would say that health of U.K. Plc and don't forget the vast majority of U.K. market is overseas and is benefiting from what we are seeing in global synchronized growth. Cash flows look quite good, and as a result, dividends looks quite good and we are seeing also a number of company stepping back from scrip dividends. So, the underlying quality of the dividends look quite good.
So, yeah, we still think that we are in a very sort of good dividend environment and we still see some good dividend prospect for number of businesses. And as you would already expect from the U.K. market, I think that dividend prospects, the cash return prospects remain very, very strong for investors.
Wall: Adam, thank you very much.
Avigdori: Thank you.
Wall: This is Emma Wall from Morningstar. Thank you for watching.
