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BlackRock Grtr Eur (BRGE)

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Thursday 16 January, 2020

BlackRock Grtr Eur

Portfolio Update

All information is at31 December 2019 and unaudited.

Performance at month end with net income reinvested

(20 Sep 04)
Net asset value (undiluted) 0.0% 4.4% 30.1% 46.9% 445.8%
Net asset value* (diluted) -0.4% 4.1% 29.6% 46.4% 444.5%
Share price 2.8% 7.4% 34.7% 53.1% 443.6%
FTSE World Europe ex UK 1.1% 0.9% 20.4% 28.2% 275.7%

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

At month end

Net asset value (capital only): 412.69p
Net asset value (including income): 412.76p
Net asset value (capital only)1: 411.35p
Net asset value (including income)1: 411.40p
Share price: 407.00p
Discount to NAV (including income): 1.4%
Discount to NAV (including income)1: 1.4%
Net gearing: 7.0%
Net yield2: 1.4%
Total assets (including income): £348.0m
Ordinary shares in issue3: 84,323,101
Ongoing charges4: 1.09%

1  Diluted for treasury shares.
2  Based on a final dividend of 4.10p per share and an interim dividend of 1.75p per share for the year ended 31 August 2019.
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.

Sector Analysis Total 
Country Analysis Total 
Industrials 21.8 Switzerland 16.3
Health Care 18.9 Denmark 16.1
Technology 17.9 France 13.7
Consumer Goods 15.6 Germany 13.7
Financials 9.6 Italy 7.3
Consumer Services 8.7 Netherlands 7.0
Basic Materials 3.2 Sweden 5.3
Telecommunications 3.2 Spain 4.9
Oil & Gas 1.5 United Kingdom 4.6
Net Current Liabilities -0.4 Israel 2.5
----- Ireland 1.8
100.0 Poland 1.8
===== Belgium 1.6
Finland 1.4
Russia 1.4
Greece 1.0
Net Current Liabilities                  -0.4


Ten Largest Equity Investments
Company Country % of
Total Assets
SAP Germany 6.3
Sika Switzerland 5.6
Adidas Germany 5.4
Safran France 5.4
Novo Nordisk Denmark 5.3
Royal Unibrew Denmark 5.2
DSV Denmark 4.6
RELX United Kingdom 4.6
ASML Netherlands 4.6
Lonza Group Switzerland 4.1
Commenting on the markets, Stefan Gries, representing the Investment Manager noted:
During the month, the Company’s NAV was flat and the share price rose by 2.8%. For reference, the FTSE World Europe ex UK Index returned 1.1% during the period.

European ex UK markets continued their rally through December, ending the year up 20.4% (GBP). Through December, sector leadership came from consumer services, financials and oil & gas sectors, whilst telecommunications significantly lagged.

The Company underperformed the reference index over the month with stock selection weighing on returns. On a sector basis, the primary relative losses came from the portfolio’s underweight position in financials. We saw a recovery in European banks based on the hope of regulatory changes easing future capital requirements and a small move higher in short-term interest rates. This, however, did not change our fundamentally negative view on the sector and we continue to hold our underweight position.

The primary detractor from performance over the month was our holding in Safran, which had posted strong returns throughout the rest of 2019. Shares fell in response to Boeing announcing a temporary suspension to production of its 737 Max programme. Safran had based its expectations for 2020 on a run rate of around 42 plane deliveries a month for this plane, which will now have to be reviewed. Whilst this leads to minor cuts in both earnings and cashflow in the near term, we believe that those cash-flows are merely delayed rather than lost and it does not alter our overall positive view of the earnings potential of Safran’s new leap engine programme.

Shares in Diasorin also fell in response to competitor Qiagen pulling out of a potential deal as they believe keeping their independence will create more value for shareholders over the long run. Shares in Qiagen de-rated 20%, having risen a similar amount in preceding months, moving the rest of the sector lower with it.

The Company benefited from not owning any telecoms stocks. Avoiding names like Orange, Deutsche Telekom and Telefonica was additive to returns. The sector was dragged down by Orange’s capital markets day early in the month which left investors disappointed. While management shared limited information on the much-anticipated towers spin-out, it decided to cut 2020 EBITDA guidance and increased capex intentions.

Semiconductor stocks continued to perform strongly with ASML a top contributor to returns. Within the same sector, shares in SAP gave up some performance as US peer Oracle slightly missed expectations. We believe that SAP is on a different path to peers as our latest channel checks would suggest the S4/Hana product upgrade cycle remains strong.

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

Despite the challenging conditions which continue to plague industrial end markets in Europe, there are reasons emerging to be more hopeful. We have seen stabilisation in certain end markets which should be further supported by policy, both monetary and, in some select instances, fiscal. The strong fiscal position of the region, aided by lower yields, has the potential to make a meaningful difference and is complimented by a resilient consumer boasting some of the highest savings ratios in the developed world. Along with extreme consensus underweight positioning to the region, pillars of an investment case for Europe are building, leading to recommendation upgrades from sell-side commentators. We agree fiscal policy and falling political uncertainty could both give a boost to the region, but caution buying specific exposures based on macro narratives alone. Europe continues to have areas of the market which appear to be value traps with whole sectors suffering from falling profitability and management teams with limited ability to turn the tide. We believe selectivity in the region and a focus on long-term winners underpinned by superior fundamentals could be meaningful for the overall return achieved from the region. We continue to hold a preference for well-positioned luxury goods and aerospace companies and avoid cyclically and structurally challenged areas such as autos and banks.

16 January 2020

Latest information is available by typing 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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