BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC The information contained in this release was correct as at 31 May 2022. Information on the Company’s up to date net asset values can be found on the London Stock Exchange website at:
https://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html.
BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC (LEI - 5493003R8FJ6I76ZUW55)
All information is at 31 May 2022 and unaudited.
Performance at month end with net income reinvested
| One Month |
Three Months |
One Year |
Three Years |
Launch (20 Sep 04) | |
| Net asset value (Undiluted) | -4.1% | -7.5% | -15.5% | 39.8% | 576.2% |
| Share price | -7.9% | -13.6% | -23.1% | 37.2% | 536.2% |
| FTSE World Europe ex UK | 0.2% | 0.5% | -1.5% | 27.2% | 338.1% |
Sources: BlackRock and Datastream
At month end
| Net asset value (capital only): | 492.28p |
| Net asset value (including income): | 497.52p |
| Share price: | 463.00p |
| Discount to NAV (including income): | 6.9% |
| Net gearing: | 0.7% |
| Net yield1: | 1.4% |
| Total assets (including income): | £509.0m |
| Ordinary shares in issue2: | 102,300,411 |
| Ongoing charges3: | 1.02% |
1 Based on a final dividend of 4.55p per share for the year ended 31 August 2021 and an interim dividend of 1.75p per share for the year ending 31 August 2022.
2 Excluding 15,628,527 shares held in treasury.
3 Calculated as a percentage of average net assets and using expenses, excluding interest costs, after relief for taxation, for the year ended 31 August 2021.
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| Top 10 holdings | Country | Fund% |
| Novo Nordisk | Denmark | 8.4 |
| ASML | Netherlands | 7.5 |
| LVMH Moët Hennessy | France | 6.0 |
| Lonza Group | Switzerland | 5.9 |
| RELX | United Kingdom | 5.6 |
| DSV Panalpina | Denmark | 4.7 |
| Sika | Switzerland | 4.4 |
| Royal Unibrew | Denmark | 3.8 |
| IMCD | Netherlands | 3.1 |
| Hermès International | France | 2.8 |
Commenting on the markets, Stefan Gries, representing the Investment Manager noted:
During the month, the Company’s NAV fell by 4.1% and the share price by 7.9%. For reference, the FTSE World Europe ex UK Index returned 0.2% during the period.
European ex UK equity markets continued to experience volatility during May. Assets associated with the value style outperformed growth assets as markets tried to factor in the impact higher rates might have on economic growth.
As most market commentators worry about an economic slowdown, we see a very narrow market with defensives and commodities performing well, whilst most other sectors struggled. During May, energy, telecommunications and financials led the market while consumer sectors, health care and industrials were down in absolute terms. On the positive side, consumer and corporate balance sheets remain healthy and the Q1 corporate earnings season has shown the majority of companies in our portfolio continue to post robust results with a confident outlook for at least the immediate future. Industries that are experiencing accelerated demand as a result of the current crisis include spending on energy efficiency, renewables, infrastructure and defence.
We continue to be in an environment where shares are being derated in anticipation of earnings downgrades. While we are not seeing downgrades materialising for the majority of companies in the portfolio right now, we have to acknowledge that the level of uncertainty in markets remains elevated, as we are far from getting to the end of this period of heightened inflation and potential economic slowdown. We tend to believe that in periods of slower growth, companies exposed to structural growth end markets, whose earnings may slow but not go negative, should ultimately be able to outperform cyclical areas of the market. These are the types of companies held in the portfolio. 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 underperformed its reference index during the month with both sector allocation and stock selection being negative. In sector terms, the Company’s lower allocation to energy was negative for performance as the sector was the standout market leader in May. Given our preference towards owning quality businesses with high levels of cash flow visibility, resilience and pricing power, we have been underweight the sector and typically took exposure to energy only selectively in our Developing European assets. In our view, companies operating in the space are often reliant on unpredictable underlying commodity prices, tend to have a poor track record of capital allocation and can be challenged by the disruption from carbon transition and the need to re-invest in lower returning renewables projects.
The higher exposure to industrials and technology also detracted, as higher multiple stocks were once again sold. A negative impact from the portfolio’s overweight to health care was more than offset by accurate stock selection.
The industrials sector was the largest detractor to relative returns during May. Whilst the stocks we own within the sector are unique in their set up and often unrelated to each other, most of them suffered from being higher multiple stocks. Sika, Kingspan and IMCD were amongst the largest detractors. Whilst we do not believe there are any issues from a fundamental perspective with these companies, and in fact many of these have reported strong earnings results in recent months, we acknowledge the risk of a continued derating of higher quality stocks on the back of concerns over an economic slowdown and hedge funds cutting exposures.
The Company’s position in Novo Nordisk weighed on portfolio returns. There was one piece of newsflow concerning pricing of a competitor drug, which was largely in line with our expectations. Operationally, the company is progressing very well having positively pre-released Q1 results and raised guidance in April. We continue to see this as a best in class, value creating and resilient business. The portfolio also suffered by not owning TotalEnergies – a large index constituent in the energy sector.
On a positive note, the share price pressure on Straumann abated this month – aiding relative returns. The company announced a small acquisition which will expand their clear aligners footprint in select European markets and the CEO confirmed that they are not seeing any evidence of consumer weakness. Aside from these points, the company also released a very strong update at the end of April. While the market ignored the update on the day, shares eventually moved higher over the course of May. There had been some concern around the more discretionary nature of their dental aligners business in light of consumers pressured by inflation. However, overall sales grew by 27.2%, a big beat compared to the consensus estimate of 15.7%.
Lastly, some of the index’s large cap defensives sold off during the risk-on bounce later in the month. Not holding Roche, Nestle, L’Oreal and Richemont was positive in this context.
At the end of the period, the Company had a higher allocation than the reference index towards technology, consumer discretionary, industrials and health care. The Company had an underweight allocation to financials, utilities, energy, consumer staples, telecoms, real estate and basic materials.
Outlook
So far 2022 has been challenging, with concerns over the economic implications of the Russia invasion of Ukraine, rising interest rates and continued supply chain disruptions weighing on equity returns.
While we believe the environment remains supportive for corporate profits overall, there is potential for a slowdown as growth begins to normalise during the latter half of the year. Meanwhile the operating environment for companies continues to be complicated by supply chain and labour market disruptions. In addition, we expect some of the strong cyclical tailwinds, and indeed policy support seen in 2021, to fade over the course of 2022. Whilst rate markets and inflation expectations are likely to stay volatile, we do not expect policy in Europe to change significantly.
We continue to stay close to our companies which allows us to understand the environment they are operating in. We expect greater dispersion between sector and stock outcomes and with that a need for greater selectivity. In our view this will favour well-managed, well-organised businesses with an element of pricing power and we believe that holding these businesses will benefit our shareholders over the medium to long term.
28 June 2022
ENDS
Latest information is available by typing www.blackrock.com/uk/brge on the internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV terminal). Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.
