Portfolio Update

BLACKROCK GREATER EUROPE INVESTMENT TRUST plc (LEI - 5493003R8FJ6I76ZUW55)
All information is at31 October 2018 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)	-7.8%	-6.8%	1.1%	45.0%	350.8%
Net asset value* (diluted)	-7.8%	-6.8%	1.1%	45.6%	351.2%
Share price	-7.9%	-7.0%	-1.7%	41.6%	328.6%
FTSE World Europe ex UK	-6.1%	-7.9%	-5.6%	35.5%	228.6%

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

At month end

Net asset value (capital only):	346.08p
Net asset value (including income):	350.14p
Net asset value (capital only)1:	346.08p
Net asset value (including income)1:	350.14p
Share price:	330.00p
Discount to NAV (including income):	5.8%
Discount to NAV (including income)1:	5.8%
Net cash:	6.3%
Net yield2:	1.7%
Total assets (including income):	£302.7m
Ordinary shares in issue3:	86,459,691
Ongoing charges4:	1.10%

1  Diluted for treasury shares.
2  Based on a final dividend of 3.70p per share for the year ended 31 August 2017 and an interim dividend of 1.75p per share for the year ended 31 August 2018.
3  Excluding 23,869,247 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 2017.

Sector Analysis	Total Assets (%)		Country Analysis	Total Assets (%)
Industrials	27.5		Switzerland	18.2
Health Care	22.2		France	14.0
Technology	11.9		Germany	11.7
Financials	11.3		Denmark	11.0
Consumer Goods	9.5		Netherlands	8.3
Consumer Services	4.6		Italy	4.6
Basic Materials	3.3		Russia	4.6
Telecommunications	1.9		Sweden	4.3
Oil & Gas	1.5		United Kingdom	3.7
Net Current Assets	6.3		Israel	3.5
	-----		Finland	2.4
	100.0		Spain	2.3
	=====		Ireland	2.2
			Belgium	1.8
			Greece	1.1
			Net Current Assets	6.3
				-----
				100.0
				=====

Ten Largest Equity Investments
Company	Country	% of Total Assets
Lonza Group	Switzerland	7.4
Safran	France	5.4
Novo Nordisk	Denmark	5.3
SAP	Germany	5.2
Sika	Switzerland	4.5
RELX	United Kingdom	3.7
Unilever	Netherlands	3.4
Thales	France	3.3
ASML	Netherlands	3.1
Sberbank	Russia	3.0

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

During the month, the Company’s NAV fell by 7.8% and the share price decreased by 7.9%. For reference, the FTSE World Europe ex UK Index returned -6.1% during the period.

During October, investor fears of a combination of global growth slowing from a high level and US 10-year treasury yields moving to 3.25% at the intra-month peak, put equity valuations under pressure. In European markets, and financial assets in particular, stress was further heightened by the continued political uncertainty in Italy. The government seems committed to retaining all their original fiscal numbers, including a deficit target rising to 2.4% of GDP next year. An early Excessive Deficit Procedure against Italy opened by the EU Commission would not come as a surprise in this context.

Beneath the market fall, we also witnessed a sharp rotation, driven by a technical book flattening as investors, and in particular hedge funds, moved to close underweights to unloved sectors such as telecoms and utilities. Small and Mid Cap growth stocks were some of the hardest hit in the market, as money moved towards defensive sectors.

The Company underperformed the market over the month, driven by negative stock selection.

On a sector basis, the higher allocations to the industrials and technology sectors compared to the reference index, detracted from performance as cyclical areas of the market (those more linked to the economic cycle) sold off. On the other side of this, the larger allocation to health care, a more defensive sector, aided returns.

The largest detractor was a holding in Fresenius Medical Care. The company downgraded their guidance for sales given a perfect storm of operational issues within their US dialysis business, regulatory delays in opening new centres, which we believe will be resolved early in the new year, weakness within their product portfolio and accounting effects from their small exposure to Argentina. The share price reaction was impacted by confusion as to the true underlying drivers of the business given a lack of clarity from management, though this was partially resolved towards the end of the month with a lengthy conference call which provided a clearer message. We expect that market confidence in the company is unlikely to recover in the near term, but our best analysis thus far suggests the issues are transitory rather than permanent.

The holding in Danske Bank detracted as uncertainty around the CEO role increased following the company’s failed candidate application to the FSA. More broadly, the share price was impacted negatively by ongoing volatility in Italy as the political situation continues to create tension in the market. This volatility also impacted the holding in Finecobank.

Not holding large benchmark constituents Nestlé, Novartis, Roche and Sanofi also detracted from performance. These stocks were driven higher by their defensive characteristics, as market participants de-risked their portfolios.

The Company benefited from some positive reporting during the quarter. Christian Hansen, for example, grew by 10% organically in their fiscal Q4, with positive expansion across key divisions. Food, cultures & enzymes in particular grew strongly, with 7.4% sequential margin expansion as new capacity ramps-up. Guidance for the next fiscal year was given as 9-11% revenue growth with some margin expansion.

The allocation to emerging market stocks Bezeq Israeli Telecommunication and Alpha Bank, both also aided performance over the period. 

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

Outlook

The range of potential economic outcomes is widening. Whilst stimulus has helped to push US growth ahead, pockets of slower growth are appearing across regions and industries. Overall, as with the onset of this year, we think global growth will become more moderate, but do not yet believe we are moving towards a recessionary environment, either in Europe or globally. In saying this, we are increasingly sceptical of the situation in Italy and believe there is greater downside risk emanating from this region. Increased risks of contagion may dampen our view on European fundamentals. At present, however, we continue to see a relatively robust environment for the consumer, who is enjoying wage increases but a low level of inflation, as well as strength in certain industries such as construction, where order books are improving. Following the market re-set, valuation risk also appears less extended and intra-market positioning less extreme. As the economic situation unfolds in the global arena and fixed income markets potentially stabilise, there may be opportunities to add to attractively valued companies which are exhibiting strong earnings power. In the near-term, we have moved our portfolio to be more defensive at the margin acknowledging potential risks on the horizon.

26 November 2018

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.