Portfolio Update

BLACKROCK GREATER EUROPE INVESTMENT TRUST plc (LEI - 5493003R8FJ6I76ZUW55)
All information is at30 June 2019 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)	8.2%	12.0%	12.6%	55.5%	423.5%
Net asset value* (diluted)	8.2%	12.0%	12.6%	55.5%	424.0%
Share price	8.5%	12.0%	11.4%	57.4%	403.5%
FTSE World Europe ex UK	6.4%	8.8%	7.9%	42.8%	266.5%

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

At month end

Net asset value (capital only):	397.23p
Net asset value (including income):	400.00p
Net asset value (capital only)1:	397.23p
Net asset value (including income)1:	400.00p
Share price:	381.00p
Discount to NAV (including income):	4.8%
Discount to NAV (including income)1:	4.8%
Net gearing:	0.8%
Net yield2:	1.5%
Total assets (including income):	£339.4m
Ordinary shares in issue3:	84,858,101
Ongoing charges4:	1.09%

1  Diluted for treasury shares.
2  Based on a final dividend of 4.00p per share for the year ended 31 August 2018 and an interim dividend of 1.75p for year ending 31 August 2019.

3  Excluding 25,470,837 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 2018.

Sector Analysis	Total  Assets  (%)		Country Analysis	Total  Assets  (%)
Industrials	29.4		Switzerland	17.6
Health Care	19.8		France	16.7
Technology	17.3		Denmark	14.5
Consumer Goods	13.7		Germany	13.7
Financials	7.3		Italy	7.7
Consumer Services	6.9		Netherlands	6.3
Basic Materials	4.2		Spain	5.2
Telecommunications	1.8		Sweden	5.0
Net current liabilities	-0.4		United Kingdom	4.5
	-----		Israel	3.4
	100.0		Ireland	1.9
	=====		Belgium	1.6
			Greece	1.0
			Poland	0.8
			Finland	0.5
			Net current liabilities	-0.4
				-----
				100.0
				=====

Ten Largest Equity Investments
Company	Country	% of Total Assets
SAP	Germany	6.5
Safran	France	6.4
Novo Nordisk	Denmark	6.3
Sika	Switzerland	5.9
Adidas	Germany	5.1
DSV	Denmark	4.5
RELX	United Kingdom	4.4
Lonza Group	Switzerland	4.4
ASML	Netherlands	3.7
Ferrari	Italy	3.7

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

During the month, the Company’s NAV rose by 8.2% and the share price by 8.5%. For reference, the FTSE World Europe ex UK Index returned 6.4% during the period.

Markets rallied over the month, supported by more dovish rhetoric coming from central banks sending 10 year German bund yields to record lows as inflation expectations fell. The indication that rates could move lower in the euro area led bank shares lower and they continue to be the worst performing sector in Europe year-to-date.

In Europe we also saw the airline industry come under pressure as Lufthansa’s profit warning, citing fierce competition in domestic markets, dragged the sector lower.

Manufacturing PMIs once again fell in the region, the fifth straight month of contraction which continues to be influenced by production in the autos industry and other industries sensitive to global trade-war rhetoric.

The Company outperformed the index over the month. This was driven by strong stock selection and further aided by a positive contribution from sector allocation.

The Company maintained its overweight towards real world economic cyclicals, particularly industrials and technology, which aided returns over the month. The Company also saw a positive contribution from its long held lower allocation to financials. Small relative losses were experienced due to the lower weighting towards basic materials, as the sector led the market over the month.

The largest single contributor in June was a position in specialty chemicals distributor Sika as it closed its deal with Parex during the month, a deal which will allow the company to realise cost synergies through optimized production. The second quarter organic revenue growth is likely to be slightly tougher given the environment for autos production; however, management remain confident in the margin recovery as raw materials become a tailwind in the second half and leverage comes through from improved pricing.

In industrials, the Paris Air Show brought good news for the Company’s holding in Safran. The group commented that the 737Max programme it has with Boeing is on track and that aftermarket guidance remains for high single digit secular growth. The turn-around plan for Zodiac, the acquisition merged into the group in Q4 2018, continues apace with an expectation for airline seat production to move back into organic growth this year. All three core divisions are therefore showing encouraging trends.

Elsewhere in aerospace and defence, share in Thales also performed well following a reassuring capital markets day and the full year guidance for the Gemalto business coming in in line with consensus. We believe the shares continue to be attractive trading on a circa 7% free-cash-flow yield.

On the negative side the primary stock specific detractor in the month was Chr Hansen. The Danish bioscience company reported disappointing quarterly profit and cut its sales outlook for the year due to slower growth in all three divisions. We see this as more of a confluence of separate issues occurring concurrently rather than a wholesale change to the group’s long run earnings power and maintain our small weight in the Company.

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 near-term outlook for markets remains uncertain, with global trade war rhetoric a significant influence, driving a deterioration in certain end markets such as industrial chemicals and autos. However, we believe the European economy looks reasonably positioned with a resilient consumer, high capacity utilisation rates and attractive funding costs. We believe these factors are likely to drive capex higher through 2019. We have begun to see tentative signs of the end of the earnings downgrade cycle, confirming that the recent setback is a mid-cycle slowdown as opposed to a recessionary environment, although global political challenges can prove disruptive in the near-term. With a combination of improving earnings, undemanding valuation and potential inflection in indicators, we believe investors are more likely to reassess their underweight position to the region. Within our portfolios we have a preference for industrial, health care and technology companies, assessing earnings opportunities through the lenses of wealth creation, resilience and change. We broadly avoid positions within financials, particularly banks, telecoms and materials. 

17 July 2019