BlackRock Greater Europe Investment Trust Plc - Portfolio Update

BLACKROCK GREATER EUROPE INVESTMENT TRUST plc (LEI - 5493003R8FJ6I76ZUW55)
All information is at 30 April 2019 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%	12.7%	9.3%	51.1%	386.4%
Net asset value* (diluted)	4.1%	12.7%	9.3%	52.2%	386.9%
Share price	5.0%	13.2%	11.0%	53.9%	372.0%
FTSE World Europe ex UK	4.0%	8.9%	2.5%	41.9%	250.4%

* Diluted for treasury shares and subscription shares.
Sources: BlackRock and Datastream
 

At month end

Net asset value (capital only):	370.99p
Net asset value (including income):	373.49p
Net asset value (capital only)1:	370.99p
Net asset value (including income)1:	373.49p
Share price:	359.00p
Discount to NAV (including income):	3.9%
Discount to NAV (including income)1:	3.9%
Net gearing:	3.1%
Net yield2:	1.6%
Total assets (including income):	£317.5m
Ordinary shares in issue3:	85,018,101
Ongoing charges4:	1.09%

   

1  Diluted for treasury shares.

2  Based on a final dividend of 4.00p per share and an interim dividend of 1.75p per share for the year ended 31 August 2018.

3  Excluding 25,310,837 shares held in treasury.

4  Calculated as a percentage of average net assets and using expenses, excluding interest costs, after relief for taxation, for the year ended 31 August 2018.

   

Sector Analysis	Total  Assets  (%)		Country Analysis			Total  Assets  (%)
Industrials	30.6		France			17.7
Health Care	19.7		Switzerland			16.6
Technology	17.6		Denmark			14.7
Consumer Goods	10.8		Germany			13.2
Financials	8.3		Italy			7.3
Consumer Services	7.9		Netherlands			6.1
Basic Materials	4.0		Spain			5.2
Telecommunications	1.7		Sweden			4.9
Net current liabilities	-0.6		United Kingdom			4.3
	-----		Israel			3.3
	100.0		Ireland			2.3
			Finland			2.1
			Belgium			1.8
			Greece			1.1
			Net current liabilities			-0.6
						-----
						100.0
Ten Largest Equity Investments
Company					Country	% of Total Assets
Safran					France	6.4
SAP					Germany	6.2
Novo Nordisk					Denmark	5.5
Sika					Switzerland	5.4
DSV					Denmark	4.3
RELX					United Kingdom	4.3
Lonza Group					Switzerland	4.1
ASML					Netherlands	3.8
Kering					France	3.5
Adidas					Germany	3.4

Commenting on the markets, Stefan Gries, representing the Investment Manager noted:

During the month, the Company’s NAV rose by 4.1% and the share price rose by 5.0%. For reference, the FTSE World Europe ex UK Index returned 4.0% during the period.

Equity markets continued to rebound in April with Eurozone markets posting the largest gains. Within Europe, IT and consumer discretionary stocks led the market upturn with financials and industrials closely following as cyclical sectors outperformed. Some tentatively stronger data out of China aided the autos sector in particular. Despite gains in the oil price, energy stocks continued to underperform.

The European Central Bank (ECB) left policy unchanged and reiterated its plan not to hike interest rates this year. ECB President Mario Draghi conceded that data since policymakers last met in early March confirmed “slower growth momentum extending into the current year”.

The Company performed in line with the index over April. Whilst sector allocation was additive for performance, stock selection proved a small negative detractor over the month.

On a sector basis our larger allocation to the industrials sector versus the reference index was additive to returns, as was our larger allocation to technology. Both these sectors were boosted over the month by stronger fundamentals shown through the company earnings season. The higher allocation to the health care sector, however, detracted from performance. The sector proved more volatile amid policy rhetoric from the US. This is likely to be an overhang for the sector leading up to the next US Presidential elections, but we believe strong fundamental opportunities persist within the space which should be less impacted by legislative changes.

A position in chemicals business Sika, one of the largest active weights in the Company, was the top performer over the period. The company had a strong start to the year reporting a 7.1% growth in sales. The gross margin recovery remains on track driven by pricing measures. Management also confirmed the acquisition of French competitor Parex being on schedule. Despite highlighting tougher market conditions and a tighter labour market in the US, Sika stuck with its full year targets of 6-8% growth (excluding the Parex deal), and a return to disproportionate growth in profits.

The market reacted positively to strong results from software giant SAP, which grew its top-line by an impressive 12% at constant exchange rates. This growth was driven in particular by 41% year-on-year growth in cloud revenues, as well as better than expected license revenue numbers. French semiconductor stock STMicroelectronics was also amongst the top performers, as management gave a more positive outlook for the second half of the year which was taken positively by the market. Within the same sector, Dutch chip equipment maker ASML and Germany’s Infineon equally contributed positively to returns.

A holding in Danish pharma stock Novo Nordisk was the single largest detractor. Following strong performance over the last few months, shares in Novo Nordisk fell on US regulatory worries during April. Lonza and Straumann were also dragged down with the sector; however, the Company benefited from avoiding large cap defensive names like Roche, Novartis and Sanofi.

At the end of the period the Company had a higher allocation than the reference index towards industrials, technology, consumer services and health care. A lower allocation was held in financials, consumer goods, utilities, telecommunications, basic materials and oil & gas.

Outlook

With the potential for economic indicators, particularly those relating to the industrial economy, bottoming out in the near term, Europe may be moving back towards trend growth in the second half of 2019. Alongside the need for some Chinese related good fortune, the European economy looks reasonably positioned with a resilient consumer, high capacity utilisation rates and attractive funding costs. We believe these factors are likely to drive capex higher through 2019. We have begun to see tentative signs of the end of the earnings downgrade cycle, confirming that the recent setback is a mid-cycle slowdown as opposed to a recessionary environment. With a combination of improving earnings, undemanding valuation and potential inflection in indicators, we believe investors are more likely to reassess their underweight position to the region. Within our portfolios we have a preference for industrial, health care and technology companies, assessing earnings opportunities through the lenses of wealth creation, resilience and change. We broadly avoid positions within financials, particularly banks, telecoms and materials. 

22 May 2019

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