BlackRock Greater Europe Investment Trust Plc - Portfolio Update

BLACKROCK GREATER EUROPE INVESTMENT TRUST plc (LEI - 5493003R8FJ6I76ZUW55)
All information is at 31 December 2018 and unaudited.

Performance at month end with net income reinvested
 

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

At month end

1  Diluted for treasury shares.
2  Based on a final dividend of 4.00p per share and an interim dividend of 1.75p per share for the year ended 31 August 2018.
3  Excluding 24,955,837 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 2018.

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

During the month, the Company’s NAV and share price fell by 5.8% and 5.7% respectively. For reference, the FTSE World Europe ex UK Index returned -4.6% during the period.

European ex UK markets fell sharply in December as concerns around global growth and political agendas plagued the market. Across the market index, all sectors produced a negative performance except utilities which was buoyed by capital flow into perceived defensive assets, those with less exposure to the economic cycle.

The Eurozone December flash Purchasing Manager Index was lower than expected, partially dragged down by the collapse in industrial production in Germany as a result of poor auto production in recent months due to emissions regulations. Political tension in France, and indeed globally from the continued trade war rhetoric, weighed on both business and consumer confidence.

Whilst inflation remains at bay, The European Central Bank confirmed to end its net asset purchases in December, and clarified that it will continue with reinvestments until at least after its first interest rate hike.

Stock selection was the main driver of the Company’s underperformance over the month versus the reference index. Sector allocation was broadly neutral. Whilst the lower allocation to the utilities sector was a drag on returns, the Company’s lower weighting towards financials was beneficial.

The largest detractor over the month was a position in Lonza, which fell sharply ahead of its 2019 guidance due at the end of January. Investors appear nervous that there will be a repeat of last year’s experience in which guidance disappointed and the shares sold off aggressively. At the same time, new accounting methodology and the disposal of its Water Care business are both leading to further uncertainty. We were conscious of the potential for small downgrades going into the event, but believe the long-term structural growth of the company remains robust.

The Company also experienced a loss in health care position Fresenius Medical Care. The company released an ad hoc guidance update for 2019 which was viewed negatively by the market. While there are many moving parts, we believe the long-term investment case is intact and see good value in the shares at this price.

A number of other positions which are mid-cap and exhibit a richer valuation, but do offer, we believe, strong potential growth in earnings, also suffered underperformance. This included positions in Ferrari and LVMH.

Positively, a holding in Novo Nordisk aided returns as trials for cardiovascular outcomes on their oral semaglutide drug were favourable. This should allow the company to apply to the Food and Drug Administration for a cardiovascular label for their existing injectable drug, which could prove a boost to sales in the future.

At the end of the period, the Company had a higher allocation than the reference index towards industrials, technology, consumer services and health care. A lower allocation was held in financials, consumer goods, utilities, telecommunications, basic materials and oil & gas.

Outlook

The range of potential economic outcomes is widening. Whilst stimulus has helped to push US growth ahead, pockets of slower growth are appearing across regions and industries. Overall, as with the onset of this year, we think global growth will become more moderate, but do not yet believe we are moving towards a recessionary environment, either in Europe or globally. In saying this, we are increasingly sceptical of the situation in Italy and believe there is greater downside risk emanating from this region. Increased risks of contagion may dampen our view on European fundamentals. At present, however, we continue to see a relatively robust environment for the consumer, who is enjoying wage increases but a low level of inflation, as well as strength in certain industries such as construction, where order books are improving. Following the market re-set, valuation risk also appears less extended and intra-market positioning less extreme. As the economic situation unfolds in the global arena and fixed income markets potentially stabilise, there may be opportunities to add to attractively valued companies which are exhibiting strong earnings power. In the near-term, we have moved our portfolio to be more defensive at the margin acknowledging potential risks on the horizon.

16 January 2019

ENDS

Latest information is available by typing www.brgeplc.co.uk 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.