BlackRock Greater Europe Investment Trust Plc – Portfolio Update

BLACKROCK GREATER EUROPE INVESTMENT TRUST plc (LEI - 5493003R8FJ6I76ZUW55)
All information is at 30 April 2020 and unaudited.

Performance at month end with net income reinvested
 

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

At month end

1  Diluted for treasury shares.
2  Based on a final dividend of 4.10p per share for the year ended 31 August 2019 and an interim dividend of 1.75p for the year ending 31 August 2020.
3  Excluding 26,005,837 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 2019.

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

During the month, the Company’s NAV rose by 5.9% and the share price by 14.7%. For reference, the FTSE World Europe ex UK Index returned 4.6% during the period.

Europe ex UK markets performed strongly during the month, rebounding following extremely volatile March performance. We saw a partial recovery of cyclical assets with particularly strong performance from the autos industry. Technology and basic materials also rallied, while the oil & gas sector was the only sector delivering negative returns during April. The oil price fell to historic lows on the back of weak oil demand, as many airlines have cancelled flights across the world and car traffic has been significantly reduced. This resulted in the front month WTI Futures Contract briefly trading in negative territory, as insufficient storage capacity meant traders were unable to take physical delivery of oil. More defensive sectors including utilities and consumer services also underperformed the overall market.

The Company outperformed the reference index over the month, largely driven by strong sector allocation while stock selection was neutral. In sector terms, the Company benefited from a lower allocation to the energy sector. In particular, avoiding large cap name Total was positive for performance. An underweight exposure to defensive areas of the market such as utilities also aided returns.

The technology sector was the strongest contributor to relative returns, driven by a higher allocation to semiconductor names, as well as strong stock selection. The Company benefited from positions in BE Semiconductor, ASML, as well as Infineon. Dutch BE Semiconductor, a leading supplier of semiconductor assembly equipment, was the top contributing stock in the portfolio. The shares rallied after the company announced strong Q1 results, with orders up 18% quarter on quarter and gross margins above the guided range and ahead of consensus estimates. Our position in German semiconductor name Infineon also performed strongly given its high exposure to the auto sector. The auto industry rebounded strongly during the month with car sales in China already being back to pre-coronavirus levels during April. The auto exposure in the Company derives from our semiconductor holdings, while we do not own any car manufacturers, other than Ferrari, which we consider a luxury stock.

The basic materials sector also aided returns. Chemicals distributor IMCD was one of the best performers posting good results. The group has little Asia exposure compared to some of its competitors which was helpful during the first quarter. While one would therefore expect Q2 numbers to be slightly more challenging, given a high exposure to Europe, the business is proving its resilience. IMCD has been able to gain market share during previous market downturns and is in a good position to achieve the same during this crisis. 

Within healthcare, Diasorin continued to defy gravity this month, with the shares up by 33% year-to-date against a down market, due to its role in developing tests and antibody tests for Covid-19. We continue to believe the group’s underlying prospects, regardless of its role in the virus, remain sector leading.

The Company also saw a positive contribution from the financials sector. In particular, our holding in Italian asset gatherer FinecoBank was amongst the top contributors during the month. FinecoBank reported strong sales during April with flows being better than expected and activity levels up significantly, which is encouraging to see given the tougher market environment. FinecoBank has a resilient business model and benefits from a growing brokerage business. Also, within financials, a position in KBC contributed to returns, as did avoiding Banco Santander. Furthermore, a number of cyclical assets in the portfolio, such as Hexagon and DSV, were among the top performers during this healthier market backdrop.

The Company experienced a negative contribution from the consumer services sector. A position in Kering was the single largest detractor during the month. Shares in Kering were weaker as the market was disappointed by its Q1 update. Kering’s main brand Gucci underperformed some of its larger peers given its high exposure to the Chinese consumer. Furthermore, Gucci had to stop its production in Italy due to the lockdown measures in the country. However, we continue to like the business model over the long term. We believe the luxury sector is better placed to recover from the crisis than many other industries due to product scarcity and fewer issues with inventory than many consumer-facing sectors.

Industrials holding Sika also detracted from relative returns, as the shares were flat during the month following outperformance against the market in March. The operating performance of the company remains robust with Q1 sales growth ahead of consensus estimates, albeit with weaker regional performance in Asia than in the US or Europe, indicating that lockdown effects were yet to be felt in these geographies. Other detractors from relative returns were mainly the result of not owning large index constituents such as Bayer, L’Oréal and Allianz.

At the end of the period the Company had a higher allocation than the reference index towards technology, consumer services, industrials and health care. The Company had a neutral weighting towards telecoms and a lower allocation to consumer goods, financials, utilities, oil & gas and basic materials.

Outlook

The current global economic downturn is politically induced; a consequence of governments taking actions to preserve life due to the outbreak of a global pandemic. As a result, assessing the shape of the economic recovery will likely come down more to health and disease related data than traditional indicators or outlook for profits for specific companies. At BlackRock, we have invested significant resource in tracking of disease related data points by region in order to understand the potential fallout and indeed the speed at which economies can start to normalise. We have already seen tentative signs of recovery in China as lockdown is lifted, with consumer spending coming back and Purchasing Manager Indices quickly moving back to expansionary territory. However, risk of a second wave of infection remains and the ability to fend this off will be important.

From a fundamental perspective, it is evident structural challenges remain in numerous end markets within Europe, which makes it paramount to take an active approach to investing with clearly defined investment criteria. Our research focuses on companies which are often exposed to secular growth drivers, with superior market positions and products, brands or contract structures that should allow for a greater degree of value creation over time. As always, we will be guided by our understanding of company earnings and cashflows on a multi-year basis, looking for exceptional companies which can prove resilience of their business model over the long term.

18 May 2020

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.