Portfolio Update

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

All information is at 31 May 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)	2.7%	-0.8%	16.6%	13.3%	806.8%
Share price	1.9%	-0.7%	17.9%	6.2%	778.3%
FTSE World Europe ex UK	3.7%	5.7%	18.1%	26.3%	461.5%

Sources: BlackRock and Datastream
 

At month end

Net asset value (capital only):	645.70p
Net asset value (including income):	651.16p
Share price:	623.00p
Discount to NAV (including income):	4.3%
Net gearing:	8.0%
Net yield1:	1.1%
Total assets (including income):	£652.1m
Ordinary shares in issue2:	100,142,022
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 17,786,916 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 24.5 Consumer Discretionary 22.5 Technology 22.3 Health Care 14.9 Financials 8.7 Basic Materials 5.5 Consumer Staples 0.8 Net Current Assets 0.8 -----  100.0 =====

Country Analysis Total Assets (%) France 21.9 Netherlands 20.8 Switzerland 16.9 Denmark 11.0 United Kingdom 6.5 Sweden 6.2 Ireland 5.9 Italy 3.7 United States 2.7 Belgium 1.8 Germany 1.8 Net Current Assets 0.8 ----- 100.0 =====

Top 10 holdings	Country	Fund %
Novo Nordisk	Denmark	9.3
ASML	Netherlands	7.7
RELX	United Kingdom	6.1
LVMH	France	5.8
Safran	France	4.2
Hermès	France	4.0
ASM International	Netherlands	4.0
BE Semiconductor	Netherlands	4.0
Ferrari	Italy	3.7
Schneider Electric	France	3.6

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

During the month, the Company’s net asset value rose by 2.7% and the share price by 1.9%. For reference, the FTSE World Europe ex UK Index returned 3.7% during the period.

European ex UK markets rebounded from the prior month’s decline as US inflation came in at expected levels, down from the previous months’ above forecast result and bond yields steadied.

The market’s top performance was driven by a distinctive mix of sectors, with real utilities and financials emerging as the leading contributors. Energy and consumer discretionary were the weakest sectors in the market.

Generally, we saw concerns around the Chinese and North American consumer, with European consumers being a brighter spot. However, incremental evidence of an improving business cycle continues to come through: many industries are seeing a bottoming in end-markets; GDP is growing and indicators such as PMIs are improving; large projects are coming back in a sign of confidence; and European banks continue to show no stress in provisions.

We are currently finding the broadest opportunity set in Europe we have seen for many years and generally expect company messaging to continue its positive trajectory 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 slightly underperformed the reference index in May, largely driven by our exposure to the luxury sector.

In sector terms, the portfolio’s higher weight to consumer discretionary detracted, as did a lower weight to financials. A zero weight in the energy sector as well as a higher weight in industrials contributed positively.

The portfolio’s holding in LVMH detracted on suggestions of modestly weaker trading. We had noted risks versus near-term consensus expectations for LVMH through the alternative data we track and had an eye on recent management changes, with the latest coming in the role overseeing their fashion group. Overall, nothing has changed in our long-term view of this business, which we believe to be one of the best companies in the market and expect shares to respond favourably to any sign of improved trading through the year.

Positions in Hermès and Ferrari also detracted with shares down on the slightly bearish comments on luxury demand, but also influenced by sensitivity to long-term interest rates.

A pull back in the portfolio’s position in Linde weighed on relative returns in May. The company released solid Q1 2024 results, but the market seemed disappointed with guidance which was only raised at the low end of the company’s range. We think management’s conservatism at Q1 is understandable and expect Linde to continue showing strong execution and proving their ability to grow earnings.

The portfolio’s holding in Lonza detracted, with shares pulling back slightly after strong performance earlier in the year. The company released a Q1’24 qualitative update during May which kept the FY’24 outlook unchanged, looking for flat sales growth and EBITDA margin in the high 20s. While there was a nod to softer performance in Q1, they also suggested it has been normalising across H1 with expectations for H2 sales to be solid given timing of batch releases.

On the positive side, shares in Chemometec recovered from oversold levels in May. We have recently met with the CEO and are encouraged to see a pivot to their strategy to one we believe to be quite promising from a commercial perspective.

Companies exposed to secular trends also benefited during the month. Schneider Electric was amongst the top performers, largely on the back of strong messaging around data centres and AI at several industry events that investors, including ourselves, attended during the month. Read-across from peers reporting during May also showed very strong data centre spend coming through. US-based NVIDIA reported another set of strong results, reaffirming our view that the topline growth forecast for Schneider remains very well set as Schneider is extremely well positioned for data centre investments.

Similarly, positions in semiconductor companies did well in the month. Shares in ASMi and BE Semiconductor rose on the back of AI trends.

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 interest rates have started to come down in Europe.

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.

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.

26 June 2024

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