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

Environmental, Social and Governance (ESG) investing is often conflated or used interchangeably with the term “sustainable investing”. BlackRock has identified sustainable investing as being the overall framework and ESG as a data toolkit for identifying and informing our solutions. BlackRock has defined ESG Integration as the practice of incorporating material ESG information and consideration of sustainability risks into investment decisions in order to enhance risk-adjusted returns. BlackRock recognises the relevance of material ESG information across all asset classes and styles of portfolio management. The Investment Manager may incorporate sustainability considerations in its investment processes across all investment platforms. ESG information and sustainability risks are included as a consideration in investment research, portfolio construction, portfolio review, and investment stewardship processes.

The Investment Manager considers ESG insights and data, including sustainability risks, within the total set of information in its research process and makes a determination as to the materiality of such information in its investment process. ESG insights are not the sole consideration when making investment decisions and the extent to which ESG insights are considered during investment decision making will also be determined by the ESG characteristics or objectives of the Company. The Investment Manager’s evaluation of ESG data may be subjective and could change over time in light of emerging sustainability risks or changing market conditions. This approach is consistent with the Investment Manager’s regulatory duty to manage the Company in accordance with their investment objectives and policies and in the best interests of the Company’s investors. The Investment Manager’s Risk and Quantitative Analysis group will review portfolios to ensure that sustainability risks are considered regularly alongside traditional financial risks, that investment decisions are taken in light of relevant sustainability risks and that decisions exposing portfolios to sustainability risks are deliberate, and the risks diversified and scaled according to the investment objectives of the Company.

BlackRock’s approach to ESG integration is to broaden the total amount of information the Investment Manager considers with the aim of improving investment analysis and understanding the likely impact of sustainability risks on the Company’s investments. The Investment Manager assesses a variety of economic and financial indicators, which may include ESG data and insights, to make investment decisions appropriate for the Company objectives. This can include relevant third-party insights or data, internal research or engagement commentary and input from BlackRock Investment Stewardship.

Sustainability risks are identified at various steps of the investment process, where relevant, from research, allocation, selection, portfolio construction decisions, or management engagement, and are considered relative to the Company’s risk and return objectives. Assessment of these risks is done relative to their materiality (i.e. likeliness of impacting returns of the investment) and in tandem with other risk assessments (e.g. liquidity, valuation, etc.).

ESG integration does not change the Company’s investment objective or constrain the Investment Manager’s investable universe, and does not mean that an ESG or impact focused investment strategy or exclusionary screens have been or will be adopted by the Company. Similarly, ESG integration does not determine the extent to which the Company may be impacted by sustainability risks.

Fund manager commentary

31 May 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 rose by 2.7% and the share price by 1.9%. For reference, the FTSE World Europe ex UK Index returned 3.7% during the period.

European ex UK markets rebounded from the prior month’s decline as US inflation came in at expected levels, down from the previous months’ above forecast result and bond yields steadied.

The market’s top performance was driven by a distinctive mix of sectors, with real utilities and financials emerging as the leading contributors. Energy and consumer discretionary were the weakest sectors in the market.

Generally, we saw concerns around the Chinese and North American consumer, with European consumers being a brighter spot. However, incremental evidence of an improving business cycle continues to come through: many industries are seeing a bottoming in end-markets; GDP is growing and indicators such as PMIs are improving; large projects are coming back in a sign of confidence; and European banks continue to show no stress in provisions.

We are currently finding the broadest opportunity set in Europe we have seen for many years and generally expect company messaging to continue its positive trajectory on the 6–18-month view. Overall, we retain our core exposure to companies with predictable business models, higher than average returns on capital, strong cash flow conversions and opportunities to reinvest that cash flow into future growth projects at high incremental returns.

The Company slightly underperformed the reference index in May, largely driven by our exposure to the luxury sector.

In sector terms, the portfolio’s higher weight to consumer discretionary detracted, as did a lower weight to financials. A zero weight in the energy sector as well as a higher weight in industrials contributed positively.

The portfolio’s holding in LVMH detracted on suggestions of modestly weaker trading. We had noted risks versus near-term consensus expectations for LVMH through the alternative data we track and had an eye on recent management changes, with the latest coming in the role overseeing their fashion group. Overall, nothing has changed in our long-term view of this business, which we believe to be one of the best companies in the market and expect shares to respond favourably to any sign of improved trading through the year.

Positions in Hermès and Ferrari also detracted with shares down on the slightly bearish comments on luxury demand, but also influenced by sensitivity to long-term interest rates.

A pull back in the portfolio’s position in Linde weighed on relative returns in May. The company released solid Q1 2024 results, but the market seemed disappointed with guidance which was only raised at the low end of the company’s range. We think management’s conservatism at Q1 is understandable and expect Linde to continue showing strong execution and proving their ability to grow earnings.

The portfolio’s holding in Lonza detracted, with shares pulling back slightly after strong performance earlier in the year. The company released a Q1’24 qualitative update during May which kept the FY’24 outlook unchanged, looking for flat sales growth and EBITDA margin in the high 20s. While there was a nod to softer performance in Q1, they also suggested it has been normalising across H1 with expectations for H2 sales to be solid given timing of batch releases.

On the positive side, shares in Chemometec recovered from oversold levels in May. We have recently met with the CEO and are encouraged to see a pivot to their strategy to one we believe to be quite promising from a commercial perspective.

Companies exposed to secular trends also benefited during the month. Schneider Electric was amongst the top performers, largely on the back of strong messaging around data centres and AI at several industry events that investors, including ourselves, attended during the month. Read-across from peers reporting during May also showed very strong data centre spend coming through. US-based NVIDIA reported another set of strong results, reaffirming our view that the topline growth forecast for Schneider remains very well set as Schneider is extremely well positioned for data centre investments.

Similarly, positions in semiconductor companies did well in the month. Shares in ASMi and BE Semiconductor rose on the back of AI trends.

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 interest rates have started to come down in Europe.

The corporate sector in Europe is healthy. 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 31 May 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.