Portfolio Update

BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC (LEI - 5493003R8FJ6I76ZUW55)

All information is at 29 February 2024 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)	8.7%	16.9%	21.3%	31.3%	814.5%
Share price	10.5%	19.8%	21.8%	24.0%	784.3%
FTSE World Europe ex UK	2.7%	7.4%	10.7%	32.7%	431.2%

Sources: BlackRock and Datastream
 

At month end

Net asset value (capital only):	658.36p
Net asset value (including income):	658.44p
Share price:	629.00p
Discount to NAV (including income):	4.5%
Net gearing:	7.4%
Net yield1:	1.1%
Total assets (including income):	£662.8m
Ordinary shares in issue2:	100,663,851
Ongoing charges3:	0.98%

1  Based on an interim dividend of 1.75p per share and a final dividend of 5.00p per share for the year ended 31 August 2023.

2  Excluding 17,265,087 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 2023.

Sector Analysis Total Assets (%) Industrials 23.5 Consumer Discretionary 23.2 Technology 22.9 Health Care 15.0 Financials 8.5 Basic Materials 4.8 Consumer Staples 1.2 Net Current Assets 0.9 -----  100.0 =====

Country Analysis Total Assets (%) France 22.1 Netherlands 20.1 Switzerland 16.8 Denmark 12.8 United Kingdom 6.7 Sweden 5.8 Ireland 5.2 Italy 3.8 United States 2.4 Belgium 1.7 Germany 1.7 Net Current Assets 0.9 ----- 100.0

Top 10 holdings	Country	Fund %
Novo Nordisk	Denmark	8.8
ASML	Netherlands	7.3
LVMH	France	6.2
RELX	United Kingdom	6.2
BE Semiconductor	Netherlands	4.9
Hermès	France	4.3
Ferrari	Italy	3.8
Safran	France	3.8
ASM International	Netherlands	3.5
Partners Group	Switzerland	3.4

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

During the month, the Company’s net asset value (NAV) rose by 8.7% and the share price was up by 10.5%. For reference, the FTSE World Europe ex UK Index returned 2.7% during the period.

Robust corporate earnings combined with decent outlook statements and support from reasonably resilient macroeconomic data drove markets higher. Generally, this backdrop supported cyclical assets whilst defensives underperformed – although largely due to industry specific issues. Consumer discretionary, industrials and technology delivered the strongest performance in the market. Real estate, utilities, energy, and consumer staples fell in absolute terms.

Our constructive outlook remains intact as the consumer and corporate balance sheet remain strong, inflation is easing, and we are starting to get more evidence of parts of the economy turning. While there may be some areas of the market still working through pockets of weakness, we generally expect company messaging to be more positive on the 6–18-month view. Overall, we retain our core exposure to companies with predictable business models, higher than average returns on capital, strong cash flow conversions and opportunities to reinvest that cash flow into future growth projects at high incremental returns.

The Company outperformed its reference index during the month, driven by positive sector allocation and stock selection.

In sector terms, the Company particularly benefited from its higher weights in cyclical assets such as consumer discretionary, technology and industrials. A lower weight to utilities and energy aided relative returns as the sectors continued to suffer under collapsing gas prices. The portfolio’s underweight exposure to consumer staples was also positive as many companies within the sector, particularly within food and spirits, experienced weaker trading. Elsewhere, an underweight to telecoms and real estate aided active returns.

A number of the semiconductor names, including BESI, ASML and ASMi, were amongst the best performers having reported strong results themselves and also enjoying tailwinds from capex increases to fund the Artificial Intelligence infrastructure across the tech sector. Another set of strong results from US chip name NVIDIA also moved the industry higher. Our holding in BESI was the top performer over the month providing a strong attribution effect, with shares gaining nearly 20% in the month. The company reported Q4 results including a 7% beat on revenue and 18% beat on EBIT versus consensus expectations. Although their Q1 2024 guide came out below consensus, investors looked past the immediate term, focusing instead on positive comments around the speed of adoption for hybrid bonding which is a key long-term catalyst for earnings growth.

A solid contribution came from the consumer discretionary sector as the Company’s luxury names rebounded strongly after some pressure over the second half of 2023. Our position in Hermès contributed positively following strong quarterly results. Sales were up over 17% versus 14% consensus during Q4 and management hinted at strong momentum in 2024 so far.

Elsewhere in the sector, shares in LVMH continue to perform strongly on the back of better-than-expected results posted in January. Luxury sportscar maker Ferrari also once again impressed with strong results as the brand continues to see strong demand worldwide across models. Net revenues for 2023 came in at €6bn and cash flow remains strong. The order book is full giving investors earnings visibility out to 2026, whilst revenue from personalisation options is hitting record highs.

The portfolio’s health care positioning was supportive with positive attribution from holdings in Chemometec and Novo Nordisk, as well as from avoiding more defensive pharma names such as Roche. Chemometec reported encouraging results and outlook commentary. Despite market fears management reiterated guidance for 2024, noting an improving outlook and early signs of recovery in the cell and gene market. Recent calls with management and expert networks suggest demand for their products remains incredibly strong.

Shares in Adyen also rallied in the month gaining over 25%. The company posted H2 2023 results including a 10% beat on total payment volume and 7% beat on EBITDA versus consensus estimates. Management guided for margin improvement to continue in 2024.

A holding in DSV was the largest detractor. The company’s Q4 results included a 4% EBIT miss versus consensus driven by their Air and Sea division which was impacted by ‘other’ costs which some brokers flagged as IT related. The leadership change announced last year also went into effect during the month with the former COO stepping into the CEO role. Finally, speculation around a potential large M&A deal ramped up again following the CFO’s presentation on their conference call which included similar buy-back and treasury management strategies seen carried out preceding previous deals.

Outlook

We remain fairly constructive on European equities as the set-up should be positive: inflation is on a downwards trajectory and the economy appears relatively robust. Eurozone inflation figures have fallen and whilst there may be volatility in month-to-month data, the economy can handle these levels of inflation. This also means that we have come to, or are close to, peak rates and at some point it is fair to assume interest rates will come down. We have already started to see a positive impact on falling mortgage rates in many European countries.

The corporate sector in Europe is healthy. There is limited corporate debt, margins are strong, there is no need for major layoffs and the end of destocking across most industries is in sight. This in turn is good news for the consumer: a supply chain and energy crisis that is largely done, combined with high employment numbers and falling inflation, suggest that the cost-of-living crisis has cooled off. This puts the region in a much better position compared to a year ago.

Nevertheless, the asset class has been under-owned ever since the Russian invasion of Ukraine in February 2022. As always in Europe, it is key to remain selective. Assessing the economy from the bottom-up can uncover areas for greater optimism than traditional economic indicators may suggest. Our regular contact with management teams helps us understand whether the direction of earnings and cashflows on a medium to long-term view for the companies in our portfolio remains on track.

Long-term structural trends and large amounts of fiscal spending via the Recovery fund, Green Deal and the REPowerEU plan in Europe can also drive demand for years to come, for example in areas such as infrastructure, automation, innovation in medicines, the shift to electric vehicles, digitization, or decarbonisation.

Valuations are attractive versus history and especially versus US equities. Overall, evidence of a resilient consumer, healthy corporate sector and decent outlooks underpinned by green stimulus, give us confidence that many of the companies in our portfolio can continue to weather the storm.

19 March 2024

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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