BlackRock Greater Europe Investment Trust plc

About this investment trust

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The Company aims to provide capital growth, primarily through investment in a focused portfolio constructed from a combination of the securities of large, mid and small capitalisation European companies, together with some investment in the developing markets of Europe.

Why choose it?

Europe is a rich source of innovation and dynamic capitalism. Active management can uncover its most exciting companies. The Trust invests in global brand leaders, plus smaller companies focused on niche, high growth areas. The Trust looks for high quality, well-capitalised companies with strong management teams that can create real value for shareholders over time. 

Suited to…

This Trust is designed for investors looking to invest in a selection of Europe’s highest quality, fastest-growing companies, irrespective of their size and geography. They must be willing to take on some additional risk to grow their capital over the long term.

Citywire: As at 16 November 2021.
Investment Week: As at 18 November 2021.
Kepler Rating: As at 1 January 2022.

What are the risks?

• Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
• Overseas investment will be affected by movements in currency exchange rates.
• Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore the value of these investments may be unpredictable and subject to greater variation.
• Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.
• The Trust’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Trust may not be able to realise the investment at the latest market price or at a price considered fair.

Useful information

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Fees & Charges

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ESG Integration

The fund noted above does not commit to sustainable criteria nor does it have a sustainable investment objective.

BlackRock considers many investment risks in our processes. In order to seek the best risk-adjusted returns for our clients, we manage material risks and opportunities that could impact portfolios, including financially material Environmental, Social and/or Governance (ESG) data or information, where available. See our Firm Wide ESG Integration Statement for more information on this approach and fund documentation for how these material risks are considered within this product, where applicable.

Fund manager commentary

31 October 2024

Comments from the portfolio managers

Please note that the commentary below includes historic information in respect of performance data in respect of portfolio investments, index performance data and the Company’s NAV performance.

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results.

During the month, the Company’s NAV fell by 5.2% and the share price declined by 7.2%. For reference, the FTSE World Europe ex UK Index returned -1.9% during the period.¹

Markets experienced a challenging month, with broad based weakness across the market and particularly challenged in technology, whilst even more defensive sectors like consumer staples also struggled.

There was positioning in the market ahead of the US elections and, in particular, we saw yields picking up in the US as well as Europe. However, Q3 2024 earnings were also in focus which has seen a mixed reporting season so far. The consumer sector remains challenged, with particularly poor results from companies with high exposure to China. The European consumer has proved to be more resilient than expected in certain categories, whilst the backdrop in China means that the Chinese consumer remains weak. Despite the weakness in the consumer sector there are certain sectors in the market that remain strong. For example, within the industrials sector we continue to see very healthy demand for electrical products supported by continued investment needs in data centres, the distribution grid and the electrification of buildings. Banks continue to perform well, with solid results despite rate cuts in the quarter and still limited delinquencies. The telecommunications and financials sectors were up during the month, while the sell-off was led by technology, consumer staples, real estate and materials.

The Company lagged its reference index during the month, largely driven by the portfolio’s exposure to technology. In sector terms, the portfolio’s overweight allocation to the technology sector hurt relative performance as ASML’s weak results dragged down the sector. An underweight allocation to telecommunications also detracted, as we have seen the sector re-rate against a more uncertain economic backdrop. The portfolio’s lower exposure to financials was also negative.

A higher exposure to consumer discretionary positions detracted during the month but was more than offset by strong stock selection. Our underweight allocation to consumer staples aided returns. Positively, the overweight exposure to industrials also aided performance, particularly as we see strength coming through in aerospace and defence.

Negative performance came from the semiconductor industry. The sector was hit by disappointing quarterly results from ASML. The company reduced its 2025 revenue guidance from EUR35bn to EUR32.5bn at the midpoint, representing 12% year-on-year growth, down from the previously expected 25%. The main reason for this warning is a reduction in the assumptions for extreme ultraviolet lithography (EUV) tool shipments in 2025, from 71 to 50, due to a slower recovery in end demand (excluding artificial intelligence (AI)), faster normalisation in China, and some customers, in particular Intel and Samsung, facing transition difficulties in moving to the next node. Despite these challenges, ASML's position in the ecosystem remains very strong and long-term trends in wafer growth, driven by AI, electrification, energy transition and the innovation curve, remain unchanged. ASML continues to be a monopoly business with the potential for double-digit growth over time.

BE Semiconductor (BESI) delivered weaker guidance for the upcoming quarter, expecting Q4 sales to be down by 5%-15% quarter-on-quarter, while Q3 sales already declined 8% quarter-on-quarter. Despite the short-term difficulties in end markets, BESI remains optimistic about its long-term prospects, particularly in the advanced packaging tools market, which is crucial for the development of more powerful semiconductor chips.

Elsewhere in the sector, ASM International (ASMI) provided a positive update over the month, highlighting strong demand for their technology, which allows them to continue growing despite a generally soft underlying market. Q3 sales and orders came in ahead of consensus and the company slightly increased its targets for 2025, aiming for sales between EUR3.2bn-3.6bn, compared to EUR3.0bn-3.6bn previously. However, shares still declined due to concerns that some of the issues affecting ASML could eventually impact ASMI as well.

On the positive side, Ferrari was the top performer to relative returns over the month. The sportscar manufacturer continues to see positive earnings momentum driven by a full order book and new product launches. Shares were also buoyed by optimism surrounding the unveiling of their long-awaited hypercar - the Ferrari F80 - which is expected to be a meaningful contributor to earnings growth from next year.

Schneider Electric was another top performer thanks to the company's strong Q3 financial results, which included a quarterly revenue increase by 8%. The company benefited from robust demand across various sectors and geographies, particularly within their data centres and infrastructure divisions. Industrial automation end markets remain weak though. With its strategic focus on electrification, digitisation and sustainability trends, we believe Schneider has positioned itself well to capitalise on these long-term growth drivers.

Shares in Safran also outperformed the falling market. Results showed better aftermarket dynamics, which have led to reiteration of FY free cash flow guidance for the business, against expectations that incremental working capital headwinds would be felt owing to Boeing issues.

Finally, avoiding positions in Capgemini, Bayer and Pernod-Ricard positively impacted relative returns, as these companies reported poor earnings in the month.

Outlook

We believe underlying economic conditions remain robust with consumers and corporates in healthy positions. Inflation is retreating and rate cutting cycles have begun in earnest across the globe, which increases investor propensity to move up the risk curve in search for higher returns. We continue to take scaled and deliberate cyclical risk in European equities as profitability continues to be resilient in many European cyclicals, with their sensitivity to economic shocks and the domestic economy significantly reduced. After a long period of underinvestment, long duration and structural investment spend is now in place to support these businesses and their underlying earnings should move higher over a multi-year period.

Alongside investment opportunities afforded by structural forces, such as the energy transition or AI, we also detect a cyclical upturn in a variety of industries like construction, life-sciences and chemicals which have suffered from pronounced volume declines for the best part of two years. We remain positive on the outlook, given a structurally improved market composition in Europe, potential for a cyclical recovery, and valuations in the European market at a record wide discount relative to the US.

¹Source: BlackRock, 31 October 2024

Unless otherwise stated all data is sourced from BlackRock as of 31 October 2024

Any opinions or forecasts represent an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. 

This information should not be relied upon by the reader as research, investment advice or a recommendation.

Risk: Reference to the names of each company in this communication is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies.

Portfolio manager biography

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Stefan Gries is co-manager of BlackRock Greater Europe Investment Trust plc. He is head of the European Equity team within the Fundamental Equity division of BlackRock’s Portfolio Management Group. He is co-manager on the European Absolute return (long/short) portfolios, as well as on Pan European and Europe ex UK long-only portfolios. Prior to joining BlackRock in 2008, Stefan spent two years at Scottish Widows Investment Partnership where he completed a two-year graduate programme. Since joining BlackRock, he has worked both as a portfolio manager and as an analyst covering, at various times, energy, pharmaceuticals and insurance on behalf of the European Equity team. He earned an MA in economics and Spanish from the University of St. Andrews in 2005.

Alexandra Dangoor is co-manager of BlackRock Greater Europe Investment Trust plc. Alexandra also has research responsibilities within the team’s financials research pod focused on the European banks and insurers. Alexandra joined the BlackRock Fundamental European Equity Team in 2019 after two years on BlackRock’s graduate rotation programme, where she was an analyst in the Natural Resources and European Equity teams. Alexandra earned a BSc degree in Mathematics and Economics at Bristol University, graduating in 2015, and an MSc in Investment and Wealth Management at Imperial College Business School, graduating in 2016. 

Board of directors

All the Directors are non-executive and independent of the Investment Manager. The Board as a whole constitutes the Audit and Management Engagement Committee.

Eric Sanderson (appointed April 2013) (Chairman) is a chartered accountant and a banker and was chief executive of British Linen Bank from 1989 to 1997 and a member of the management board of Bank of Scotland in his role as head of group treasury operations from 1997 to 1999. He was formerly chairman of MyTravel Group PLC, MWB Group Holdings, Dunedin Fund Managers Limited and Schroder UK Mid Cap Fund plc. He is presently chairman of JPMorgan Emerging Europe, Middle East & Africa Securities Limited.

Peter Baxter (appointed April 2015) has over 30 years’ experience in the investment management industry. He is an executive director of Snowball Impact Management Ltd, a social impact investment organisation, a non-executive director of Civitas Social Housing plc, and a trustee of Trust for London, and was a member of the Financial Reporting Council’s Conduct Committee. Previously he was chief executive of Old Mutual Asset Managers (UK) Ltd and worked for Schroders and Hill Samuel in a variety of investment roles.

Paola Subacchi (appointed July 2017) (Senior Independent Director) is an economist, writer and commentator on the functioning and governance of the international financial and monetary system. She is Professor of International Economics and Chair of the Advisory Board, Global Policy Institute, Queen Mary University of London, visiting professor at the University of Bologna, non-executive director of Scottish Mortgage Investment Trust PLC as well as Founder of Essential Economics Ltd. She writes regularly on Project Syndicate.

Ian Sayers (appointed February 2022) (Chairman of the Audit and Management Engagement Committee) is the former Chief Executive of the Association of Investment Companies (AIC), which he became in 2010 on his promotion from Deputy Director General. Prior to that, he was the AIC’s Technical Director, advising members on areas such as taxation, accounting, company law and regulation, as well as having a key role in its public affairs activity. He qualified as a chartered accountant and chartered tax advisor.

Sapna Shah (appointed 12 December 2023) has 20 years of investment banking experience advising UK companies, including listed REITs and investment companies, on IPOs, equity capital market transactions and mergers and acquisitions. She is a non-executive director of The Association of Investment Companies and a consultant at Panmure Gordon Limited. Prior to this she held senior investment banking roles at UBS AG, Oriel Securities (now Stifel Nicolaus Europe) and Cenkos Securities. She is currently a non-executive director of Supermarket Income REIT plc and BioPharma Credit PLC.