Investment trusts

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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Fund manager commentary

30 April 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 net asset value fell by 5.5% and the share price was down by 3.9%. For reference, the FTSE World Europe ex UK Index returned -1.7% during the period (BlackRock, 2024). This drawdown follows a period of strong performance. The Company remains ahead of the reference index year-to-date through April.

Q1 trends reversed during April with value significantly outperforming growth and defensives outperforming cyclicals. European ex UK markets were down during the month.

Volatility was driven by higher than anticipated US inflation data which is proving stickier than what the market had expected, leading investors to materially change its rate cut expectations from six at the beginning of the year, to only one rate cut forecasted this year. The higher for longer narrative brought back debates around the degree to which inflation is, or is not, transitory and whether the US central bank has done enough in monetary tightening. While inflation is proving stickier than expected, we can see big on-offs in the services inflation prints which we expect to normalise, as well as reasons to believe wages are coming down which will also support lower services inflation.

Despite the change in expectations in the US, European inflation and rate expectations were less impacted, whilst the earnings cycle is proving relatively robust, with consensus revised positively on aggregate through the period.

The energy and utilities sectors were up during the month, whilst particularly cyclical areas of the market such as technology and consumer discretionary fell.

The Company underperformed the reference index in April, driven by both sector allocation and stock selection.

A change in market leadership, defensives over cyclicals and value over growth, was evident through a sector lens where portfolio allocations created a negative effect on relative returns driven by overweight exposures to technology and consumer discretionary, as well as not owning positions in energy and utilities.

A market repricing of interest rate expectations, particularly in the US, was felt at the stock level with shares trading on higher relative price/earnings ratio multiples being sold in the month as rates edged higher and expectations for central bank rate cuts were pushed out. This was felt in the portfolio’s quality-growth holdings such as Adyen, BE Semiconductor, Partners Group and Straumann all contributing to negative attribution in April. In some cases, this exacerbated the reaction to company updates through Q1’24 reporting.

Straumann released Q1 sales at the end of the month. While the overall organic growth result beat consensus expectations, the underlying geographic mix was concerning in that growth was led by Asia while North America continues to be lacklustre. BE Semiconductor also released Q1 results showing weak orders intake, driven by autos and smartphone applications. While the traditional packaging and assembly market has been recovering at a slower pace, advanced packaging remains healthy and the company has indicated that Hybrid Bonding orders are expected to accelerate in Q2, catalysed by multiple customers.

A position in IMCD detracted from relative returns. Shares had moved higher this year on the back of an earlier company update suggesting Q4’23 could be the trough in destocking amongst the end-markets for which they supply specialty chemicals. However, their Q1’24 update showed the recovery in chemicals distribution has yet to materialize while operating profit also fell. There was no full year guidance given, with management citing market dynamics making it difficult to predict, though the comparable base gets easier from Q2’24 making it easier to grow into what we have expected to be an H2 weighted cycle upturn. Similarly, freight forwarder DSV experienced weakness given a more uncertain outlook across their end markets.

In the technology space, we saw weaker results from ASML. The company reported a Q1’24 order intake of €3.6bn, which was lower than expected. The overall structural story for ASML remains unchanged though, with strong long-term demand for its lithography equipment. In contrast, ASM International shares made a positive contribution. The supplier of wafer processing equipment raised its revenue forecast for Q2’24, attributing it to stronger-than-anticipated demand from China and increased sales in advanced logic and memory sectors.

Novo Nordisk contributed positively to active returns in April with the shares moving slightly higher against the falling market, likely benefiting to an extent via market positioning towards defensives in April.

Atlas Copco delivered a strong set of Q1’24 results, with orders beating consensus expectations by 9% despite facing tough comparables from last year. The company also noted sequential improvement in demand from its semiconductor customers which was welcomed positively by the market.

Outlook

We remain constructive on European equities as the set-up should be positive: inflation is on a downwards trajectory and the economy appears relatively robust. Eurozone inflation figures have fallen and whilst there may be volatility in month-to-month data, the economy can handle these levels of inflation. This also means that we have come to, or are close to, peak rates and it is fair to assume that at some point interest rates will come down. We have already started to see a positive impact on falling mortgage rates in many European countries.

The corporate sector in Europe is healthy. We believe there is limited corporate debt, margins are strong, there is no need for major layoffs and the end of the destocking across most industries is in sight. This in turn is good news for the consumer: a supply chain and energy crisis that is largely done, combined with high employment numbers and falling inflation, suggest that the cost-of-living crisis has cooled off. This puts the region in a much better position compared to one year ago.

Nevertheless, the asset class has been under-owned ever since the Russian invasion of Ukraine in February 2022. As always in Europe, it is key to remain selective. Assessing the economy from the bottom-up can uncover areas for greater optimism than traditional economic indicators may suggest. Our regular contact with management teams helps us understand whether the direction of earnings and cashflows on a medium to long-term view for the companies in our portfolio remains on track.

Long-term structural trends and large amounts of fiscal spending via the Recovery fund, Green Deal and the REPowerEU plan in Europe can also drive demand for years to come, for example in areas such as infrastructure, automation, innovation in medicines, the shift to electric vehicles, digitization or decarbonisation.

Valuations are attractive versus history and especially versus US equities. Overall, evidence of a resilient consumer, healthy corporate sector and decent outlooks underpinned by green stimulus should be supportive for the companies held in the portfolio.

Unless otherwise stated all data is sourced from BlackRock as of 30 April 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.