REG-BlackRock Greater Europe Investment Trust Plc: Portfolio Update

Blackrock Greater Europe Investment TrustAnnouncement

23/08/2024 15:00

 

 

 

BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC (LEI - 5493003R8FJ6I76ZUW55)

All information is at 31 July 2024 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)  -3.5%      -0.3%         9.5%      0.4%         780.6%              
 Share price                  -0.5%      0.0%          12.3%     -4.6%        761.4%              
 FTSE World Europe ex UK      0.1%       2.1%          11.3%     20.2%        452.7%              

Sources: BlackRock and Datastream
 

 

At month end

 Net asset value (capital only):      626.96p     
 Net asset value (including income):  632.40p     
 Share price:                         611.00p     
 Discount to NAV (including income):  3.4%        
 Net Gearing:                         8.2%        
 Net yield 1 :                        1.1%        
 Total assets (including income):     £630.0m     
 Ordinary shares in issue 2 :         99,615,504  
 Ongoing charges 3 :                  0.98%       

 

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 ending 31 August
2024.

2 Excluding 18,313,434 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.

 

                          
 Sector Analysis          Total Assets (%)  
 Industrials              25.7              
 Consumer Discretionary   22.4              
 Technology               20.3              
 Health Care              15.3              
 Financials               8.8               
 Basic Materials          6.6               
 Consumer Staples         0.9               
 Net Current Liabilities  0.0               
                          -----             
                          100.0             
                          =====             
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                              
 Country Analysis         Total Assets (%)  
 France                   20.6              
 Netherlands              20.6              
 Switzerland              18.1              
 Denmark                  10.4              
 United Kingdom           6.8               
 Ireland                  6.1               
 Sweden                   5.9               
 Italy                    3.8               
 United States            3.8               
 Belgium                  2.0               
 Germany                  1.9               
 Net Current Liabilities  0.0               
                          -----             
                          100.0             
                          =====             
                                            
                                            
                                            
                                            
                                            
                                            

 


 

 Top 10 holdings     Country         Fund %  
 Novo Nordisk        Denmark         8.8     
 ASML                Netherlands     7.7     
 RELX                United Kingdom  6.8     
 LVMH                France          5.2     
 Safran              France          4.1     
 ASM International   Netherlands     4.0     
 Hermès              France          3.8     
 Ferrari             Italy           3.8     
 Schneider Electric  France          3.8     
 Linde               United States   3.7     
                                             

 

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

 

During the month, the company’s NAV fell by 3.5% and the share price
declined by 0.5%. For reference, the FTSE World Europe Ex UK Index returned
+0.1% during the period.

 

Markets experienced a pick-up in volatility during July which has continued to
accelerate into early August resulting in a growth scare that has driven a
rotation away from cyclical assets , which have been driving markets through
2024. We see the recent market sell off as being driven by a confluence of
factors including weakening US economic data, an escalation of geopolitical
unrest in the Middle East, technical factors such as an unwinding of a popular
carry trades following the strong movement in the Yen and mixed results from
US tech companies, as well as further restrictions of US tech export
restrictions to China. 

 

Recent US data has reignited fears that the economic weakness is worse than
previously thought and has brought back worries over a potential recession. We
believe the US market appears sluggish rather than outright weak. A
normalisation of employment markets has been key in moving on from the
inflation battle over the last few years. As a result, we believe the Federal
Reserve (fed) now has room to cut rates given inflation numbers are under
control and can respond to a weaker US consumer, housing market and slowing
job market accordingly. 

 

In Europe, the economic landscape is showing signs of a steady yet slow growth
environment, with no indications of an uptick in loan losses. The household
sector remains robust, characterised by minimal leverage, low unemployment
rates and real wage increases.

 

Whilst our outlook has not fundamentally changed, we are closely monitoring
our position in the semiconductor space where concerns over capex cuts may
have a more prominent impact on future growth.

 

The Company underperformed its reference benchmark, largely driven by its
exposure to the technology sector.

 

In sector terms, we saw a rotation from cyclical into defensive assets which
led to utilities, telecoms and real estate leading the market. The
portfolio’s underweight exposure to all three sectors was negative for
performance. Weakness particularly came from technology as specific concerns
around the strength of artificial intelligence (AI), delays in chips and capex
cuts by larger US players weighed on the sector. Our overweight exposure and
stock selection were negative with the top detractors during July all being
semiconductor-related stocks. Elsewhere, the consumer discretionary sector
struggled given pricing pressure in both luxury and autos. An overweight
exposure was partially offset by positive selection from avoiding autos as
well as some of the more ‘aspirational’ luxury brands. A higher weight to
industrials as well as an underweight position in energy was positive for
active returns.

 

By far the most significant negative contribution came from the technology
sector during July. Our semiconductor stocks ASML, ASMi, Besi and STMicro were
all amongst the bottom performers during the month. The tech weakness was
driven by rhetoric around trade restrictions and softness in Alphabet and
Intel results as well as rising concerns over ongoing AI-spend and its
economic return. However, commentary from Meta and Microsoft continued to
support ongoing spend in AI and capex to sustain their competitive advantage.
We are monitoring the events very closely, re-underwriting investment cases
and identifying where there are fundamental changes. We continue to see better
sequential orders coming out of some of the semi cap names, although the
recovery for the likes of Besi has been pushed to the right given slower
recovery in the smartphone and PC sectors. Similarly, STMicro’s end demand
remains very weak with exposure to weakening trend in the auto industry as
well as the Chinese industrials sector.

 

With regards to export restrictions in semiconductors, at this stage we
clearly don’t know what type of restrictions, if any, may be considered by
the US government. The US government first implemented such export
restrictions to China in October 2019 and then added more stringent controls
in October 2022 and October 2023 to slow down the pace of chip development in
China, and also block Chinese companies from having access to advanced IP
developed in the US.  We anticipate the release of this year’s restrictions
in the coming months. We believe that a ban on all immersion tools seems
unlikely, given that the developed world is still reliant on China to produce
legacy chips. Thus should it require an increasing focus from Developed
Markets governments on domestic capacity this should result a further demand
for European WFE companies.

 

Weak performance also came from the luxury sector with positions in LVMH and
Hermes being amongst the largest detractors. The sector is currently
undergoing a period of normalisation, and the downward trend may not have
reached its end yet. However, our mid to long-term outlook remains unchanged,
and we intend to maintain our investments, poised to capitalise when the
market rebounds.

 

Performance was mixed within healthcare. Not owning Roche detracted as shares
rallied following the positive response to their Phase I obesity drug trial
and a strong H1 2024 earnings report. Shares in Novo Nordisk were weak due to
concerns over potential rising competition.

 

A position in Lonza was the top performer over the month. Lonza’s first half
results confirmed the acceleration in sales momentum which was guided in its
Q1 update, as well as beating expectations on profitability. The combination
led to upgrades to its full year earnings forecasts, as well as helping to
rebuild confidence in leadership and communication.

 

Shares in Chemometec rose by 24% in the month, as the market welcomed
encouraging preliminary revenue figures released for the 2023/24 financial
year. The new CEO has been showing solid execution. We remain encouraged by
the pivot in Chemometec’s strategy to one we believe is quite promising from
a commercial perspective.

 

Finally, Belimo outperformed in July following a very strong H1 2024 result.
Group organic sales came in at 10% versus consensus expectations of 7%, with
the beat driven by data centers and industrial markets in the US. EBIT margins
also improved more than the market expected. The company guided for H2 2024
organic growth to improve sequentially, a material upgrade to prior full-year
guidance and market expectation. The market was also encouraged by Belimo’s
assessment of the mid-term opportunity from data centers, expecting the market
for HVAC systems in data centers to grow at 20-25% for the foreseeable future,
allowing this high-value segment to keep growing in the earnings mix.

 

Outlook

 

As economic momentum gathers pace and company guidance strikes a more
optimistic tone, Europe has come into the spotlight. The European Central
Bank’s decision to cut rates was taken positively, although the jury remains
out on the speed rates fall from here. Whilst this rate change is positive for
asset class sentiment, operationally we see limited impact on companies.

 

Rising political discontent, however, has been a thorn in the region’s side.
Geopolitical tensions around tariffs and elections as well as weaker macro
data in the US and China have added a degree of uncertainty. We take
confidence in the changed regulatory landscape for banks in helping manage
perceived contagion risk that could arise from potentially weaker fiscal
positions; and believe the negative impact of tariffs would only be meaningful
for a small group of companies. Whilst uncertainty on policy outcomes remains,
we believe the growth impact is likely limited in the near-term and economics
should continue their positive inflection.

 

Long-term structural trends and large amounts of fiscal spending via the
Recovery fund, Green Deal and the REPowerEU plan in Europe can also drive
demand for years to come, for example in areas such as infrastructure,
automation, innovation in medicines, the shift to electric vehicles,
digitisation or decarbonisation.

   

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.

 

 

23 August 2024



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