Portfolio Update

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

All information is at 30 April 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)	-5.5%	5.0%	14.5%	14.1%	783.2%
Share price	-3.9%	7.7%	16.0%	7.4%	761.8%
FTSE World Europe ex UK	-1.7%	4.7%	9.4%	23.9%	441.4%

Sources: BlackRock and Datastream
 

At month end

Net asset value (capital only):	632.10p
Net asset value (including income):	635.93p
Share price:	613.00p
Discount to NAV (including income):	3.6%
Net gearing:	10.9%
Net yield1:	1.1%
Total assets (including income):	£636.9m
Ordinary shares in issue2:	100,144,522
Ongoing charges3:	0.98%

1 Based on a final dividend of 5.00p per share for the year ended 31 August 2023 and an interim dividend of 1.75p per share for the year ending 31 August 2024.

2 Excluding 17,784,416 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 25.4 Consumer Discretionary 22.9 Technology 21.1 Health Care 15.3 Financials 8.8 Basic Materials 5.3 Consumer Staples 1.1 Net Current Assets 0.1 -----  100.0 =====

Country Analysis Total Assets (%) France 22.2 Netherlands 19.4 Switzerland 17.3 Denmark 12.8 United Kingdom 6.5 Sweden 5.8 Ireland 5.6 Italy 3.8 United States 2.8 Belgium 1.9 Germany 1.8 Net Current Assets 0.1 ----- 100.0 =====

Top 10 holdings	Country	Fund %
Novo Nordisk	Denmark	9.7
ASML	Netherlands	7.0
LVMH	France	6.1
RELX	United Kingdom	5.9
Hermès	France	4.2
Safran	France	4.0
Ferrari	Italy	3.8
ASM International	Netherlands	3.7
BE Semiconductor	Netherlands	3.7
Schneider Electric	France	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 fell by 5.5% and the share price was down by 3.9%. For reference, the FTSE World Europe ex UK Index returned -1.7% during the period. This drawdown follows a period of strong performance. The Company remains ahead of the reference index year-to-date through April.

Q1 trends reversed during April with value significantly outperforming growth and defensives outperforming cyclicals. European ex UK markets were down during the month. 

Volatility was driven by higher than anticipated US inflation data which is proving stickier than what the market had expected, leading investors to materially change its rate cut expectations from six at the beginning of the year, to only one rate cut forecasted this year. The higher for longer narrative brought back debates around the degree to which inflation is, or is not, transitory and whether the US central bank has done enough in monetary tightening. While inflation is proving stickier than expected, we can see big on-offs in the services inflation prints which we expect to normalise, as well as reasons to believe wages are coming down which will also support lower services inflation.

Despite the change in expectations in the US, European inflation and rate expectations were less impacted, whilst the earnings cycle is proving relatively robust, with consensus revised positively on aggregate through the period. 

The energy and utilities sectors were up during the month, whilst particularly cyclical areas of the market such as technology and consumer discretionary fell.

The Company underperformed the reference index in April, driven by both sector allocation and stock selection.

A change in market leadership, defensives over cyclicals and value over growth, was evident through a sector lens where portfolio allocations created a negative effect on relative returns driven by overweight exposures to technology and consumer discretionary, as well as not owning positions in energy and utilities.

A market repricing of interest rate expectations, particularly in the US, was felt at the stock level with shares trading on higher relative P/E multiples being sold in the month as rates edged higher and expectations for central bank rate cuts were pushed out. This was felt in the portfolio’s quality-growth holdings such as Adyen, BE Semiconductor, Partners Group and Straumann all contributing to negative attribution in April. In some cases, this exacerbated the reaction to company updates through Q1’24 reporting.

Straumann released Q1 sales at the end of the month. While the overall organic growth result beat consensus expectations, the underlying geographic mix was concerning in that growth was led by Asia while North America continues to be lacklustre. BE Semiconductor also released Q1 results showing weak orders intake, driven by autos and smartphone applications. While the traditional packaging and assembly market has been recovering at a slower pace, advanced packaging remains healthy and the company has indicated that Hybrid Bonding orders are expected to accelerate in Q2, catalysed by multiple customers.

A position in IMCD detracted from relative returns. Shares had moved higher this year on the back of an earlier company update suggesting Q4’23 could be the trough in destocking amongst the end-markets for which they supply specialty chemicals. However, their Q1’24 update showed the recovery in chemicals distribution has yet to materialize while operating profit also fell. There was no full year guidance given, with management citing market dynamics making it difficult to predict, though the comparable base gets easier from Q2’24 making it easier to grow into what we have expected to be an H2 weighted cycle upturn. Similarly, freight forwarder DSV experienced weakness given a more uncertain outlook across their end markets.

In the technology space, we saw weaker results from ASML. The company reported a Q1’24 order intake of €3.6bn, which was lower than expected. The overall structural story for ASML remains unchanged though, with strong long-term demand for its lithography equipment. In contrast, ASM International shares made a positive contribution. The supplier of wafer processing equipment raised its revenue forecast for Q2’24, attributing it to stronger-than-anticipated demand from China and increased sales in advanced logic and memory sectors.

Novo Nordisk contributed positively to active returns in April with the shares moving slightly higher against the falling market, likely benefiting to an extent via market positioning towards defensives in April.

Atlas Copco delivered a strong set of Q1’24 results, with orders beating consensus expectations by 9% despite facing tough comps from last year. The company also noted sequential improvement in demand from its semiconductor customers which was welcomed positively by the market.

Outlook

We remain 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 it is fair to assume that at some point 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 the 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 one 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 should be supportive for the companies held in the portfolio.

29 May 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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