Portfolio Update

BLACKROCK GREATER EUROPE INVESTMENT TRUST plc (LEI - 5493003R8FJ6I76ZUW55)
All information is at31 July 2017 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)	2.1%	5.3%	19.1%	49.5%	321.4%
Net asset value* (diluted)	2.1%	5.3%	19.1%	49.6%	321.8%
Share price	0.8%	4.8%	19.8%	48.8%	302.0%
FTSE World Europe ex UK	1.8%	6.0%	24.6%	46.3%	237.2%

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

At month end

Net asset value (capital only):	329.05p
Net asset value (including income):	332.41p
Net asset value (capital only)1:	329.05p
Net asset value (including income)1:	332.41p
Share price:	314.50p
Discount to NAV (including income):	5.4%
Discount to NAV (including income)1:	5.4%
Net gearing:	4.9%
Net yield2:	1.7%
Total assets (including income):	£316.8m
Ordinary shares in issue3:	95,295,953
Ongoing charges4:	1.07%

1  Diluted for treasury shares.
2  Based on a final dividend of 3.65p per share for the year ended 31 August 2016 and an interim dividend of 1.75p per share for the year ending 31 August 2017.
3  Excluding 15,032,985 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 2016.

Sector Analysis	Total  Assets  (%)		Country Analysis	Total  Assets  (%)
Industrials	27.4		Netherlands	16.8
Consumer Services	14.5		France	15.4
Financials	13.4		Germany	12.3
Consumer Goods	13.0		Switzerland	11.9
Health Care	11.1		Denmark	8.8
Technology	9.1		Sweden	8.0
Basic Materials	6.8		Russia	7.4
Oil & Gas	4.9		Belgium	5.5
Net current liabilities	(0.2)		Finland	3.4
	-----		Ireland	3.2
	100.0		Spain	2.9
	=====		Greece	1.6
			Luxembourg	1.5
			Ukraine	1.5
			Net current liabilities	(0.2)
				-----
				100.0
				=====

Ten Largest Equity Investments
Company	Country	% of Total Assets
Bayer	Germany	4.7
Unilever	Netherlands	4.2
Compagnie Financière Richemont	Switzerland	4.0
ASML	Netherlands	3.8
SAP	Germany	3.8
Wartsila	Finland	3.4
Lonza Group	Switzerland	3.3
Fresenius Medical Care	Germany	3.3
RELX	Netherlands	3.2
CRH	Ireland	3.2

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

During the month, the Company’s NAV rose 2.1% and the share price increased by 0.8%. For reference, the FTSE World Europe ex UK Index was up 1.8% during the period.

The strengthening Euro has weighed on returns as has the earnings season, which whilst robust, has seen share price reactions which are asymmetric in nature. Generally, the market has punished companies who have not met earnings expectations more severely than it has rewarded those companies which have beaten expectations.

Over the month, health care and consumer staples lagged the market while materials and financials saw the strongest returns. Although oil & gas remains the weakest performer in the FTSE World Europe ex UK Index year-to-date, the sector started to recover slightly in July as Brent crude saw its largest positive monthly price change this year.

Macro data was mixed during the month: while Eurozone unemployment fell slightly, reaching its lowest level since February 2009, the Eurozone manufacturing Purchasing Manager’s Index for July came in weaker than expected, but remains above the key expansionary level of 50. The European Central Bank (ECB) left monetary policy unchanged. Draghi’s more dovish tone has somewhat diminished expectations that interest rates will be increased or quantitative easing curtailed in the near future.

The Company outperformed the reference index over the month. Stock selection drove returns, whilst sector allocation marginally detracted.

On a sector basis, the lower allocation to the financial sector hurt performance. We continue to hold a lower weighting within the Company towards the European banking sector as market liquidity trumps loan growth, putting continual pressure on banks’ net interest income. During the month, Mario Draghi reaffirmed the ECB’s commitment to quantitative easing, particularly if the Eurozone economy were to falter.

A higher allocation to industrials also detracted from performance, but was offset by strong stock selection. Positively, the larger allocation to information technology contributed to returns as the sector recovered over July after a short-lived sell-off emanating from the US over June.

Stock selection in the industrials sector was particularly strong over the month. A position in Wartsila contributed positively as the company reported order intake 12% ahead of consensus, driven by particularly strong numbers in marine. The company upgraded their outlook for the marine business for the full year.

Positive performance contribution also came from a holding in Nordic payment services provider, Nets, which attracted interest from potential private buyers over the month.

A holding in Fresenius Medical Care was negatively impacted by the US government’s vote to begin debates around health care reform. We believe this process will be protracted but ultimately a full repeal of Obamacare seems unlikely. In this regard, it appears the stock is trading at an attractive valuation for growth on offer, particularly as Fresenius Medical Care continues to roll out its End Stage Renal Disease (ESRD) Seamless Care Organisation dialysis programme.

Outlook

Europe’s recovery remains on track. Whilst it is difficult to separate the economic benefits of the wider global expansion on the Eurozone, compared to the improving fundamentals of the Eurozone itself, we believe the background of an accommodative ECB, subdued inflation and falling political risk in the region have underpinned the attraction of European equities. The Eurozone leaders may believe this is an unprecedented opportunity to implement reforms that make the European Union’s (EU) success more assured. The chances of this have increased incrementally given Macron’s clear election win (and Merkel’s probable win) as this provides political and economic cohesion for the two key pillars of the EU.

Importantly, earnings remain robust thus far in the Q2 reporting season, with companies beating earnings expectations across the breadth of market sectors. Encouragingly, this has been driven by revenues and operating leverage rather than solely rationalisation and cost initiatives. Whilst we recognise a strengthening Euro could to an extent dampen earnings potential going forward, we would note that it is in most cases a company specific issue, given variability in cost and revenue FX exposures, and therefore increases the importance of being selective. Indeed, while valuation remains undemanding relative to other developed market equities and bonds, we believe selectivity is paramount as valuation appears stretched in certain areas of the market.

As unemployment falls and business confidence grows, we believe the European recovery remains intact and retain our confidence that investors will continue to increase weightings to this asset class.
 

10 August 2017

ENDS

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