INVESTMENT TRUSTS

2021 Outlook: Europe

The EU recovery fund should give firepower to economic growth across Europe in the year ahead. Certain sectors, such as green energy, look set to be significant beneficiaries, but challenges remain for other parts of the market. Selectivity is the best approach, says Stefan Gries, Co-Portfolio Manager of the BlackRock Greater Europe Investment Trust plc.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

As active investors, we have never believed a positive view on the European economy to be a prerequisite for attractive equity returns in the region. That said, we find ourselves today feeling more optimistic about the outlook for Europe than we have done in many years.

The newly established EU recovery fund marks a structural change in the outlook for Europe and provides a facility for a cohesive response to all future crises. While the Eurozone does not appear en route towards full fiscal union, it is taking a significant step towards stronger fiscal co-ordination when it matters. In our view, this deal sets a precedent. The EU issues debt in a crisis, which is why we expect some common fiscal response to play a greater role in future crises as well.

As far as this €750bn recovery fund1 is concerned, we expect it to direct spending, focused on the periphery, towards a green and digital transition, which should not only lend support to countries most severely hit by the crisis but it also offers the potential to make the region more competitive in a global context over time. We see interest free grants providing necessary incentives for conducting pro-growth reforms. The overall benefit of such actions should be most acutely felt in smaller countries in Emerging Europe, which is a designated part of the investment universe of this Trust.

Structural challenges are likely to remain in some industries and we believe investors will be best served by staying selective. Consequently, we continue to focus rigorously on taking an active approach to stock selection for this Trust by identifying and investing in companies with robust business models, strong management teams and growth prospects that enable them to earn an attractive spread over their cost of capital.

This material is not intended to be relied upon as a forecast, research or investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are from BlackRock as of January 2021 and may change as subsequent conditions vary.

1Financial Times, January 2021

Stefan Gries
Co-Portfolio Manager, BlackRock Greater Europe Investment Trust plc