BlackRock Greater Europe Investment Trust Plc - Portfolio Update

The information contained in this release was correct as at 30 September 2024. 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 - 5493003R8FJ6I76ZUaW55)

All information is at 30 September 2024 and unaudited.

Performance at month end with net income reinvested
 

Sources: BlackRock and Datastream
 

At month end

1  Based on a final dividend of 5.00p per share for the year ended 31 August 2023 and  an interim dividend of 1.75p per share for the year ended 31 August 2024.

2  Excluding 19,087,298 shares held in treasury.
3  The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, write back of prior year expenses and certain non-recurring items for the year ended 31 August 2023.

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

During the month, the Company’s Net Asset Value (NAV) fell by 2.3% and the share price declined by 1.0%. For reference, the FTSE World Europe ex UK Index returned -1.5% during the period.

The market began the month with concerns about the strength of the US economy and, yet again, fears of a sharper economic slowdown. However, the ongoing decline in inflation prompted key central banks, including the European Central Bank (ECB) and the US Federal Reserve, to cut rates in September 2024. The ECB lowered its key deposit rate by 25 basis points to 3.50%, marking its second rate cut of the year. Meanwhile, the Federal Reserve reduced the federal funds rate by 50 basis points to a range of 4.75% to 5.0%, the first rate cut in four years, driven by progress towards its dual mandate of stable prices and maximum employment.

Encouraging news also came from China. The government implemented several stimulus measures to support its struggling economy. These included lowering borrowing costs and injecting liquidity, easing mortgage repayments to support the property market, and launching initiatives to strengthen its capital markets. Markets generally took this as good news. We believe the stimulus will be helpful and can arrest the sharp decline of some macro factors, however we remain unconvinced it is sufficient to meaningfully drive growth at this stage.

Market leadership during the month came from real estate, materials and utilities while health care and energy delivered the weakest performance.

Our investment team met with 200+ companies at several industry conferences during September. We continue to see mixed economic trends. Whilst balance sheets are in good shape and banks are not seeing red flags in terms of the general credit environment, some pockets of weakness remain apparent, particularly amongst companies with exposure to China and a weaker consumer. Selectivity remains key.

The Company lagged its reference index during the month, largely driven by the portfolio’s exposure to technology.

In sector terms, a higher exposure to both industrials and materials aided relative returns. The Company’s underweight exposure to energy was also positive during September 2024. The energy sector fell primarily due to a decline in oil prices, driven by concerns over increased supply from Saudi Arabia and over-supply also forecasted for next year. Additionally, weak refining margins and numerous sell-side downgrades contributed to the sector’s underperformance.

A lower weight to both financials and utilities detracted from relative returns, as did a higher weight to technology.

September 2024 was another weak month for the technology sector with ASML, ASMI and Besi being amongst the largest detractors. The sector is not immune to weaker macroeconomic data, ongoing concerns around the return on Artificial Intelligence (AI) spend and potential new export restrictions on China. While we remain positive on the equipment manufacturers such as ASML and ASMI, we have reduced exposure to more cyclical operators within the sector by exiting STMicroelectronics.

Shares in Ferrari were also slightly weaker during September 2024 as we saw a degree of rotation within the consumer discretionary sector following the stimulus news from China, with profit taking post a strong run in the shares possibly offering another explanation for a pullback over the month.

Novo Nordisk’s shares fell following disappointing trial results for their experimental obesity pill, Monlunabant, which showed less weight loss than expected. Novo acquired this drug through their purchase of Inversago Pharmaceuticals in 2023. We believe the market’s reaction to the trial data was overdone. Importantly, we are anticipating new trial data for CagriSema in the coming months. As an advanced combination therapy building on blockbuster semaglutide, early results for Cagrisema have shown promising efficacy in weight reduction. If the upcoming data is positive, this drug could become the best-in-class in its category upon launch next year.

Elsewhere in health care, shares in Straumann performed strongly. The announcement of the disposal of Dr. Smile earlier in August 2024 and subsequent upgrade to guidance, continued to drive positive sentiment for the shares. Dr. Smile was not only a lower growth part of the business, but also a drag to Straumann’s profitability.

Chemometec also aided returns as investors remain encouraged by the new CEO and the company’s strong execution in navigating the downturn in the life sciences market relative to its peers. We remain encouraged by the pivot in Chemometec’s strategy to one that should deliver strong commercial results.

A strong contribution came from the industrials sector, particularly within aerospace. Safran was the top performer over the month due to the robust aeroplane aftermarket, with ageing aircrafts driving demand for maintenance services. This ongoing need for upkeep is significantly supporting their business performance.

Several assets in the portfolio benefited from positive sentiment due to falling interest rates. Partners Group, a private equity firm, along with several stocks exposed to construction and real estate markets, such as Kingspan, Belimo and Kone, benefited from falling interest rates and an improved outlook for financing conditions.

Finally, IMCD shares aided performance on a well-received capital markets day. We continue to see a slightly better backdrop for the speciality chemicals companies versus diversified chemicals where pricing is under pressure and volumes remain poor.

Outlook

We believe underlying economic conditions remain robust with consumers and corporates in healthy positions. Inflation is retreating and rate cutting cycles have begun in earnest across the globe, which increases investor propensity to move up the risk curve in search for higher returns. We continue to take scaled and deliberate cyclical risk in European equities as profitability continues to be resilient in many European cyclicals, with their sensitivity to economic shocks and the domestic economy significantly reduced. After a long period of underinvestment, long duration and structural investment spend is now in place to support these businesses and their underlying earnings should move higher over a multi-year period.

Alongside investment opportunities afforded by structural forces, such as the energy transition or artificial intelligence, we also detect a cyclical upturn in a variety of industries like construction, life-sciences and chemicals which have suffered from pronounced volume declines for the best part of two years. We remain positive on the outlook, given a structurally improved market composition in Europe, potential for a cyclical recovery, and valuations in the European market at a record discount relative to the US.

22 October 2024

ENDS

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