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 July 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 3.5% and the share price declined by 0.5%. For reference, the FTSE World Europe Ex UK Index returned +0.1% during the period.

Markets experienced a pick-up in volatility during July which has continued to accelerate into early August resulting in a growth scare that has driven a rotation away from cyclical assets, which have been driving markets through 2024. We see the recent market sell off as being driven by a confluence of factors including weakening US economic data, an escalation of geopolitical unrest in the Middle East, technical factors such as an unwinding of a popular carry trades following the strong movement in the Yen and mixed results from US tech companies, as well as further restrictions of US tech export restrictions to China.

Recent US data has reignited fears that the economic weakness is worse than previously thought and has brought back worries over a potential recession. We believe the US market appears sluggish rather than outright weak. A normalisation of employment markets has been key in moving on from the inflation battle over the last few years. As a result, we believe the Federal Reserve (Fed) now has room to cut rates given inflation numbers are under control and can respond to a weaker US consumer, housing market and slowing job market accordingly.

In Europe, the economic landscape is showing signs of a steady yet slow growth environment, with no indications of an uptick in loan losses. The household sector remains robust, characterised by minimal leverage, low unemployment rates and real wage increases.

Whilst our outlook has not fundamentally changed, we are closely monitoring our position in the semiconductor space where concerns over capex cuts may have a more prominent impact on future growth.

The Company underperformed its reference benchmark, largely driven by its exposure to the technology sector.

In sector terms, we saw a rotation from cyclical into defensive assets which led to utilities, telecoms and real estate leading the market. The portfolio’s underweight exposure to all three sectors was negative for performance. Weakness particularly came from technology as specific concerns around the strength of artificial intelligence (AI), delays in chips and capex cuts by larger US players weighed on the sector. Our overweight exposure and stock selection were negative with the top detractors during July all being semiconductor-related stocks. Elsewhere, the consumer discretionary sector struggled given pricing pressure in both luxury and autos. An overweight exposure was partially offset by positive selection from avoiding autos as well as some of the more ‘aspirational’ luxury brands. A higher weight to industrials as well as an underweight position in energy was positive for active returns.

By far the most significant negative contribution came from the technology sector during July. Our semiconductor stocks ASML, ASMi, Besi and STMicro were all amongst the bottom performers during the month. The tech weakness was driven by rhetoric around trade restrictions and softness in Alphabet and Intel results as well as rising concerns over ongoing AI-spend and its economic return. However, commentary from Meta and Microsoft continued to support ongoing spend in AI and capex to sustain their competitive advantage. We are monitoring the events very closely, re-underwriting investment cases and identifying where there are fundamental changes. We continue to see better sequential orders coming out of some of the semi cap names, although the recovery for the likes of Besi has been pushed to the right given slower recovery in the smartphone and PC sectors. Similarly, STMicro’s end demand remains very weak with exposure to weakening trend in the auto industry as well as the Chinese industrials sector.

With regards to export restrictions in semiconductors, at this stage we clearly don’t know what type of restrictions, if any, may be considered by the US government. The US government first implemented such export restrictions to China in October 2019 and then added more stringent controls in October 2022 and October 2023 to slow down the pace of chip development in China, and also block Chinese companies from having access to advanced IP developed in the US. We anticipate the release of this year’s restrictions in the coming months. We believe that a ban on all immersion tools seems unlikely, given that the developed world is still reliant on China to produce legacy chips. Thus, should it require an increasing focus from Developed Markets governments on domestic capacity this should result a further demand for European semiconductor stocks.

Weak performance also came from the luxury sector with positions in LVMH and Hermes being amongst the largest detractors. The sector is currently undergoing a period of normalisation, and the downward trend may not have reached its end yet. However, our mid to long-term outlook remains unchanged, and we intend to maintain our investments, poised to capitalise when the market rebounds.

Performance was mixed within healthcare. Not owning Roche detracted as shares rallied following the positive response to their Phase I obesity drug trial and a strong H1 2024 earnings report. Shares in Novo Nordisk were weak due to concerns over potential rising competition.

A position in Lonza was the top performer over the month. Lonza’s first half results confirmed the acceleration in sales momentum which was guided in its Q1 update, as well as beating expectations on profitability. The combination led to upgrades to its full year earnings forecasts, as well as helping to rebuild confidence in leadership and communication.

Shares in Chemometec rose by 24% in the month, as the market welcomed encouraging preliminary revenue figures released for the 2023/24 financial year. The new CEO has been showing solid execution. We remain encouraged by the pivot in Chemometec’s strategy to one we believe is quite promising from a commercial perspective.

Finally, Belimo outperformed in July following a very strong H1 2024 result. Group organic sales came in at 10% versus consensus expectations of 7%, with the beat driven by data centers and industrial markets in the US. EBIT margins also improved more than the market expected. The company guided for H2 2024 organic growth to improve sequentially, a material upgrade to prior full-year guidance and market expectation. The market was also encouraged by Belimo’s assessment of the mid-term opportunity from data centers, expecting the market for HVAC systems in data centers to grow at 20-25% for the foreseeable future, allowing this high-value segment to keep growing in the earnings mix.

Outlook

As economic momentum gathers pace and company guidance strikes a more optimistic tone, Europe has come into the spotlight. The European Central Bank’s decision to cut rates was taken positively, although the jury remains out on the speed rates fall from here. Whilst this rate change is positive for asset class sentiment, operationally we see limited impact on companies.

Rising political discontent, however, has been a thorn in the region’s side. Geopolitical tensions around tariffs and elections as well as weaker macro data in the US and China have added a degree of uncertainty. We take confidence in the changed regulatory landscape for banks in helping manage perceived contagion risk that could arise from potentially weaker fiscal positions; and believe the negative impact of tariffs would only be meaningful for a small group of companies. Whilst uncertainty on policy outcomes remains, we believe the growth impact is likely limited in the near-term and economics should continue their positive inflection. 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, digitisation or decarbonisation.

Unless otherwise stated all data is sourced from BlackRock as of 31 July 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.