BlackRock Greater Europe Investment Trust Plc - Portfolio Update

BLACKROCK GREATER EUROPE INVESTMENT TRUST plc (LEI - 5493003R8FJ6I76ZUW55)
All information is at 30 September 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)	0.0%	-0.2%	6.9%	43.8%	422.7%
Net asset value* (diluted)	0.0%	-0.2%	6.9%	43.8%	423.1%
Share price	-0.5%	0.5%	8.7%	45.7%	406.1%
FTSE World Europe ex UK	1.0%	1.6%	6.3%	33.1%	272.3%

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

At month end

Net asset value (capital only):	396.07p
Net asset value (including income):	399.37p
Net asset value (capital only)1:	396.07p
Net asset value (including income)1:	399.37p
Share price:	383.00p
Discount to NAV (including income):	4.1%
Discount to NAV (including income)1:	4.1%
Net gearing:	1.4%
Net yield2:	1.5%
Total assets (including income):	£337.5m
Ordinary shares in issue3:	84,518,101
Ongoing charges4:	1.09%

1  Diluted for treasury shares.
2  Based on a final dividend of 4.00p per share for the year ended 31 August 2018 and an interim dividend of 1.75p for the year ending 31 August 2019.
3  Excluding 25,810,837 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	26.4		Denmark	16.8
Health Care	20.2		France	16.5
Technology	17.3		Germany	14.5
Consumer Goods	16.8		Switzerland	14.5
Financials	8.9		Italy	7.9
Consumer Services	6.1		Netherlands	6.7
Basic Materials	3.2		Spain	5.1
Telecommunications	1.6		Sweden	5.0
Net current liabilities	-0.5		United Kingdom	4.5
	-----		Israel	2.7
	100.0		Poland	2.0
	=====		Ireland	1.8
			Belgium	1.6
			Greece	0.9
			Net current liabilities	-0.5
				-----
				100.0
				=====

   

Ten Largest Equity Investments
Company	Country	% of Total Assets
Safran	France	7.1
Novo Nordisk	Denmark	6.4
Adidas	Germany	6.1
SAP	Germany	5.7
Sika	Switzerland	5.2
Royal Unibrew	Denmark	4.8
Lonza Group	Switzerland	4.5
ASML	Netherlands	4.5
DSV	Denmark	4.5
RELX	United Kingdom	4.5

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

During the month, the Company’s NAV was flat, returning 0% and the share price fell by 0.5%. For reference, the FTSE World Europe Ex UK Index returned +1.0% during the period.

The market experienced a reversal over the month, where stocks that had been performing well began to underperform those out of favour stocks. This reversal proved wide spread and based on market positioning, with many of those less well owned names in the market rerating without fundamental grounding. This market unwind came from an extreme position at the end of August, following one of the sharpest downward moves in government bond yields in a single month on record.

Economic data provided further evidence that trade disputes and broader geopolitical tensions continue to weigh on the global economy.

During the month, the European Central Bank (ECB) announced a broad package of easing measures including cutting the deposit rate by 10 basis points to -50 basis points, as well as restarting asset purchases at a pace of €20bn Euro per month, with a commitment to run the programme until its inflation target was met.

The Company underperformed the index over the month with both stock selection and sector allocation detracting from returns. The financials sector was the largest detractor to returns during September, as the sector saw the strongest returns in the index. Our selected position in KBC was positive; however, the overall underweight to the sector was negative for performance. We continue to hold our underweight position, as we believe banks remain structurally challenged given low interest rates and an oversupply in the sector. There was no part of the ECB statement which we believe alters this outlook.

A lower allocation to the oil & gas sector also detracted due to the rising oil price following the attacks on Saudi oil fields, though we note this has already reversed in full going into October.

The Company’s allocation to luxury goods proved challenging over the quarter as tariff fears and ongoing protests in Hong Kong weighed on the share prices.  This included a position in LVMH, which detracted given the group’s mid single-digit sales exposure to Hong Kong. While we appreciate third quarter earnings might be slightly weaker than Q2, we still expect robust numbers and believe sales in mainland China and the US can partially offset weakness from Hong Kong.

For Rémy Cointreau, the same narrative proved challenging for the shares. However, the most recent data for August, had shown strength in the Asian and North American markets in demand for Cognac. We believe the group remains well positioned to flex their production and push up pricing in response to any potential tariff action from the US.

A holding in Safran was the top performer during the month after having reported impressive numbers across all divisions and raising growth forecasts for the rest of the year. The civil aftermarket continues to be strong, growing 10% in the first half of the year. Company management also confirmed that the LEAP engine roll-out is progressing well and that the turnaround of Zodiac, acquired in early 2018, is on track.

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

The global economic environment is clearly deteriorating in response to the uncertainty caused by US-Chinese relations. We believe this has created disruption within supply chains and potential delays to capital expenditure, but do not see structural imbalances in the economy at this point in time. Policy remains supportive in Europe and the consumer resilient with Eurozone retail sales growing 2.6% year-on-year in June. Q2 earnings releases have unveiled a slowdown in short-cycle companies, however our portfolios are generally not exposed to these types of businesses. At present, we do not see contagion beyond this. Valuation dispersion within the market remains a topic of conversation, but we believe the prevailing environment and structural headwinds warrant ‘cheap valuations’ for some sectors. Our portfolio capital is positioned to where we see the best upside driven by fundamentals. Whilst markets can respond to statistical indicators in the near term, at times causing rotations, we believe company fundamentals drive long-term performance.  We continue to have a small pro-cyclical tilt in portfolios, primarily expressed through late cycle industrials, such as aerospace stocks, and consumer exposed names, such as luxuries.

14 October 2019

ENDS

Latest information is available by typing www.brgeplc.co.uk 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.

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