Portfolio Update
The information contained in this release was correct as at 30 September 2023. 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 - 5493003R8FJ6I76ZUW55)
All information is at 30 September 2023 and unaudited.
Performance at month end with net income reinvested
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| One Month | Three Months | One Year | Three Years | Launch (20 Sep 04) |
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| Net asset value (undiluted) | -4.8% | -7.0% | 21.5% | 16.6% | 634.5% |
| Share price | -5.3% | -7.4% | 22.2% | 14.4% | 594.9% |
| FTSE World Europe ex UK | -1.1% | -1.6% | 20.5% | 28.3% | 379.3% |
Sources: BlackRock and Datastream
At month end
| Net asset value (capital only): | 528.51p |
| Net asset value (including income): | 533.60p |
| Share price: | 499.00p |
| Discount to NAV (including income): | 6.5% |
| Net gearing: | 4.2% |
| Net yield1: | 1.3% |
| Total assets (including income): | £537.9m |
| Ordinary shares in issue2: | 100,812,161 |
| Ongoing charges3: | 0.98% |
1 Based on a final dividend of 4.85p per share for the year ended 31 August 2022 and an interim dividend of 1.75p per share for the year ending 31 August 2023.
2 Excluding 17,116,777 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 2022.
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| Top 10 holdings | Country | Fund % |
| Novo Nordisk | Denmark | 9.4 |
| LVMH | France | 7.2 |
| RELX | United Kingdom | 6.3 |
| ASML | Netherlands | 5.9 |
| DSV Panalpina | Denmark | 4.8 |
| STMicroelectronics | Switzerland | 4.1 |
| Hermès | France | 4.1 |
| Lonza Group | Switzerland | 4.1 |
| BE Semiconductor | Netherlands | 3.8 |
| Safran | France | 3.7 |
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Commenting on the markets, Stefan Gries and Alexandra Dangoor, representing the Investment Manager noted:
During the month, the Company’s NAV fell by 4.8% and the share price declined by 5.3%. For reference, the FTSE World Europe ex UK Index returned -1.1% during the period.
September lived up to its reputation for being a poor month for equity markets. Europe ex UK markets were down as fears of a recession flared up again with bond yields moving higher and a sense that interest rates will remain higher for longer.
September is typically a period of limited company updates as the Q3 earnings season only starts in October. Instead, markets focused on macroeconomic data. Overall, we saw some large single stock moves over the month, some of these justified, whilst others represented short-term volatility based on sentiment, rather than fundamentals. For stocks in the latter camp, we believe it is likely the share price will move again when further hard data is released and revaluated by the market.
Meeting with many companies and attending conferences post the summer has shown that the data is softer in some areas. Industrial companies have for the most part remained reasonably sanguine about the outlook, whereas chemical and consumer companies have been communicating messages of caution.
Energy delivered the strongest returns, followed by financials and telecommunications. All other sectors, particularly IT, consumer discretionary and utilities fell.
The Company underperformed its reference index during the month, driven by negative sector allocation and stock selection. In sector terms, the Company’s higher exposure to technology detracted from returns. Our underweight to energy also hurt returns as the oil price moved higher, driven by a cut in supply rather than strong demand. Zero exposure to utilities was beneficial as higher bond yields and interest rates challenged the sector.
The largest negative impact on relative returns came from the IT sector during the month. Despite having delivered solid year-to-date performance, especially shares in our semiconductor-exposed companies such as BESI, ASML and ASMi, they were weak in September. There have been a few moving parts bringing share prices down. Firstly, some of it relates to China as the market is concerned around further technology export restrictions that could be imposed by the US. Secondly, speculation around TSMC (not held in the portfolio) potentially lowering its capex also had the market worried. Thirdly, some headlines suggested that Apple’s demand for 2024 may be lower as MacBook and iPad shipments have dropped. This would be a short-term negative for the sector. Whilst there may be challenges around weaker demand, we do not think it changes the mid-term growth outlook for these businesses. Views here would only change if we believed that the world suddenly needs fewer semiconductors. That however is not our base case. Our technology analyst attended ASMi’s Capital Markets Day during the month and is confident the company remains one of the fastest growing companies in the wafer fab equipment (WFE) market. Longer-term trends in regard to Artificial Intelligence (AI), digitisation, 5G, cloud infrastructure or vehicle electrification should support shares in years to come.
Within health care, shares in Lonza detracted. The contract drug manufacturer announced that the company’s CEO would step down from his role with the Chairman taking over until a successor is found. Whilst we believe that is a positive outcome on a long-term view, shares experienced volatility, falling more than 13%. Long-term drivers of the investment case are not impacted, however. The thesis is built on the key biologics business which continues to grow strongly and Lonza not having enough capacity to meet current demand is an indication of that.
Shares in Chemometec underperformed in the month following the release of FY 2022/23 results. While the company achieved this year’s guide, guidance presented for next year was cautious and suggests a year-on-year decline which was negatively perceived by the market. We have taken the opportunity upon share price weakness to continue to add to our position in the company on the view that we might be close to the end of funding headwinds in the cell and gene market. This has been reiterated in a recent meeting with the CEO, stating that trough conditions are being assumed towards year end. Recent management changes are also encouraging.
On the positive side, analytics company RELX was the top contributor. The stock benefited from its more defensive profile as defensives fared better during the month, as well as from the company’s accelerating organic growth.
Novo Nordisk also contributed positively, as shares in this more defensive business managed to end the month with a small gain amidst the cyclically driven market sell-off. The company also completed a stock split in the month after their share price travelled a long way higher in recent months.
Shares in Partners Group continued to outperform in September, following the announcement of strong H1 2023 results. The Swiss private equity firm delivered net profit figures +11% ahead of consensus expectations driven by strong performance fees. Importantly, the company reiterated its full year guidance for 2023, with management reiterating expectations for stronger fundraising going forward supported by an observed normalisation in the pace of client conversions. There has also been more evidence of deal activity coming back, which raises the prospects for more performance fee crystalising exits happening over the next 6-12 months.
Outlook
The noise around market moves seems to increase with every passing year. We make no attempt to predict to the basis point next quarters’ GDP, inflation or unemployment number. Nor do we pay much heed to top-down indicators or what they may reveal about the health of the global economy. From our point of view, the world finds itself currently in the midst of several transitions: Covid to post Covid, inflation to disinflation, low interest rates to high interest rates. These dynamics must be considered when assessing the health of the global economy and the prospects for equity markets. Various end markets may continue to imply weak demand as inventories are run down, while others – perhaps those associated with Chinese real estate – may have more prolonged problems. But assessing the economy from the bottom-up, company by company, we see no reason for investors with a reasonable time horizon to be alarmed. Corporate balance sheets are strong after 15 years of deleveraging, margins remain at healthy levels and we may be at the foothills of an increase in capex spending resulting in a ‘modern era industrial revolution’. Similarly, household debt relative to assets is low in large economies, interest rate sensitivity is lower than in previous cycles and real wages are growing.
As investors we must be forward looking, we must anticipate areas of enduring demand and identify those special companies whose characteristics enable them to capitalize on this demand and, in doing so, benefit their stakeholders and shareholders. We remain optimistic about the prospects of companies held in our portfolio.
16 October 2023
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.
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