Portfolio Update

The information contained in this release was correct as at 31 August 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 31 August 2023 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)	-4.1%	-0.9%	19.3%	25.9%	671.2%
Share price	-4.4%	-1.5%	17.1%	22.3%	633.9%
FTSE World Europe ex UK	-2.4%	1.9%	15.8%	30.6%	384.7%

Sources: BlackRock and Datastream
 

At month end

Net asset value (capital only):	555.12p
Net asset value (including income):	560.23p
Share price:	527.00p
Discount to NAV (including income):	5.9%
Net gearing:	5.1%
Net yield1:	1.3%
Total assets (including income):	£565.8m
Ordinary shares in issue2:	101,000,161
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 16,928,777 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.

Sector Analysis Total Assets (%) Technology 23.5 Industrials 22.7 Consumer Discretionary 20.7 Health Care 18.1 Financials 8.2 Consumer Staples 4.4 Basic Materials 2.6 Net Current Liabilities -0.2 ----- 100.0 =====

Country Analysis Total Assets (%) Switzerland 20.2 France 18.9 Denmark 17.9 Netherlands 17.3 United Kingdom 6.1 Ireland 5.4 Sweden 4.5 Italy 4.1 Spain 2.4 Belgium 1.9 Germany 1.3 Russia 0.2 Net Current Liabilities -0.2 ----- 100.0 =====

Top 10 holdings	Country	Fund %
Novo Nordisk	Denmark	9.3
LVMH	France	7.3
ASML	Netherlands	6.7
RELX	United Kingdom	5.5
DSV Panalpina	Denmark	4.4
Lonza Group	Switzerland	4.4
Hermès	France	4.2
STMicroelectronics	Switzerland	4.1
BE Semiconductor	Netherlands	4.0
Safran	France	3.5

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

During the month, the Company’s NAV fell by 4.1% and the share price declined by 4.4%. For reference, the FTSE World Europe ex UK Index returned -2.4% during the period.

August was a volatile month for Europe ex UK markets. Investors remained focused on the macro over the month, as weakening macroeconomic data cast a shadow over the short-term cyclical outlook.

Purchasing Managers' Indices (PMI) for the Euro area have gradually fallen in recent months with the Euro area composite PMI falling to 46.7, its lowest since November 2020. Elsewhere, economic data is also softening with US unemployment numbers rising slightly to 3.8% and wage increases slowing. Chinese data was a cause for worries, particularly in regard to the real estate sector and youth unemployment numbers. Despite softer macroeconomic data, central bankers stick to their commentary around rates remaining higher for longer.

During the month, only energy, health care and real estate delivered positive absolute returns, whilst all other sectors were down. The Company underperformed its reference index during the month, largely driven by negative sector allocation.

In sector terms, the Company’s higher weight to cyclical areas such as technology and industrials detracted from returns. An overweight exposure to consumer discretionary was also negative, although offset by accurate stock picking. The portfolio’s zero exposure to energy hurt relative returns as the oil price rose over the period. A higher weight to health care was positive, as was a lower weight to utilities.

The single largest detractor over the month was a position in payment platform Adyen. The investment thesis was around the company’s position as a low-cost payments provider, with its best in class single-stack technology platform, which could continue to drive profitable growth through market share gains. However, during the month, Adyen reported an earnings miss that was taken very negatively by the market. Management flagged increased pricing competition in North America as one of the reasons for slowing growth. We have heard from the company in February, again in May, and have tracked industry results where possible. Our understanding is the step change in competition may have come through from Braintree, a unit within PayPal, which we believe may be now trying to undercut Adyen, despite a higher cost stack and therefore accepting a near zero-profit as a result. This new dynamic is unquestionably negative and we have been reviewing as well as reducing our position.

A holding in Sika detracted on mixed Q2 results. Organic growth was slightly below consensus expectations with weakness in the Americas and Europe offsetting strength in Asia and their global business lines. This led to a small downgrade to full year 2023 organic growth guidance. Meanwhile gross margin expansion is coming through as expected at >300bps year-on-year to 52.7% with raw material input cost headwinds fading.

A few other detractors were impacted by concerns over weakness in China, despite no negative fundamental news flow. Shares in LVMH drifted for example due to worries over a potential slowdown in luxury growth. Similarly, names in the chip industry such as STMicro and ASML saw weakness given worries over their China exposure. In this context, not owning Infineon was positive for relative returns. Defying the trend however, ASMi was amongst the top contributors. The company, specialising in the design and manufacturing of semiconductor wafer processing equipment, have their Capital Markets Day coming up in September and investors expect a positive update on growth targets despite cyclical weakness.

The top performer was Novo Nordisk as shares rallied after the company reported a successful result from their ‘Select’ trial which was looking at the use of their obesity drug, Wegovy, for preventing major adverse cardiovascular events (MACE). The trial resulted in a 20% reduction in MACE, a result well beyond expectations, which had been tempered when the trial was continued beyond interim checkpoint in Q3 2022. We believe these results can help underpin the validity of this new category of obesity drugs, leading to further uptake from commercial insurers and government programmes.

Within industrials, Kingspan contributed positively with an acquisition announced and results reported in August, leading to a number of sell-side upgrades. We are convinced the company stands to see gains from capex supporting reshoring, electric vehicle and battery plants. While meeting with their CEO, it was made clear that most of the actual investment behind capex plans is still to come which should keep business momentum on track.

Outlook

European markets continue to be unloved and many investors remain defensively positioned. Despite this, European equities have produced strong performance over the past 12 months.

We believe the question of ‘recession or not’ is the wrong one to ask. Looking at averages of earnings or market falls during recessionary environments is of little utility to us. We do not see the ingredients for a structural recession in place as megatrends backed by increasing capex spend are improving the earnings outlook for many businesses we own in this Company. To our mind, the economic cycle cannot be understood at present without detailed bottom-up work.

Long-term structural trends and large amounts of fiscal spending via the Recovery Fund, Green Deal and the REPowerEU plan in Europe can drive demand for years to come, for example in areas such as infrastructure, automation, innovation in medicines, the shift to electric vehicles, digitalisation or decarbonisation. We believe the portfolio is well aligned to many of these structural spending streams. 

18 September 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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