modern and sustainable building with plants

Europe – a history of innovation and a future of sustainability

Europe’s vibrant history and record of innovation has led to it being the world’s third-largest economy.1 The region’s expansive population and long-established academic and political institutions have made it home to a multitude of exciting investment opportunities.

1Source: The Balance, May 2021

With ageing populations, expectations for higher correlations between asset classes, and the world’s total negative-yielding government debt reaching  €15.25tr2 there has never been a more urgent time for investors to have access to financial markets, and opportunities abound in Europe.

2Source: Bloomberg, December 2020.

 


While the region has suffered some setbacks, particularly in the face of Covid-19, the eurozone alone represents 11% of the world’s economy3, which makes its markets an important destination for global investors. Based on 2019 GDP, Germany is the world’s fourth-largest economy, the UK is ranked sixth globally, and France comes in at number seven, making these markets extremely important for global investors4. From its fast-growing emerging countries to traditional powerhouse economies like Germany, Europe offers a unique depth and breadth of options for investors. Many of the world’s leading entrepreneurial mid cap businesses are listed in Europe – providing compelling investment opportunities. In fact, at BlackRock we invest over €1.6tr on behalf of our clients in Europe, including investors from the United States, Latin America and Asia Pacific.5 And while the region has contended with a difficult year due to Covid-19, we believe these challenges are temporary.

3https://tradingeconomics.com/euro-area/gdp
4https://www.investopedia.com/insights/worlds-top-economies/
5Source: BlackRock, date September 8th 2021

A commitment to sustainability

Another attraction is that European governments, societies, and businesses are deeply committed to sustainable development, sustainable investing, and achieving environmental targets. Innovations and new technology that will usher us into a more sustainable future ̶ such as clean energy and advancements in artificial intelligence (AI) ̶ are already squarely in focus.

European governments and regulatory bodies are prioritising green initiatives and responsible investing. The introduction of the Sustainable Finance Disclosure Regulation (SFDR) should help to ensure sustainable investing practices, and the European Commission’s European Green Deal aims to make the EU climate-neutral by 20506, providing a hospitable environment for ESG focused assets and funds.

6Source: European Commission, A European Green Deal, May 2021

Opportunities in private equity

Europe-based private equity has been on an upward trajectory since 2000, with a notable jump in the last four years—and it’s estimated that there could be the potential for more than €500 billion in unrealised value available7. There are currently more than 200 Europe-focused private capital funds and nearly 3,000 institutional investors active in the alternatives market.

7Source: Prequin, December 2019

Growth of indexed assets

We’ve also seen a 19% growth in indexed asset sover the last 5 years, with $2.6tn now managed by indexed products8. A trend that has picked up at the beginning of this year with Europe catching up with the US.

8Source: BlackRock Global Business Intelligence and Broadridge, as at 31 Dec 2020. Includes ETPs and Index Pooled Funds only.

Global investors turn to Europe
Cumulative flows into European equity ETPs split by listing region, January 2021-June 2021

Graphic shows how cumulative flows into European equity listed ETFs have grown from January 2021 - June 2021

Source: BlackRock and Markit, as at 22 June 2021. Past flows into global ETPs are not a guide to current or future flows and should not be the sole factor of consideration when selecting a product.

Figures are in US dollars, unless stated otherwise.

Key investment themes

Across Europe we see five key themes that will impact and drive the future state of investors’ portfolios. These include:
Icon symbolizing cyclicity
Positioning for a cyclical rotation:
We believe the economic restart could favour the unloved cyclical sectors that account for a large weighting within European equities.
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The search for income
Credit – particularly high-yield – could offer attractive income potential. A quality approach to equity income focusing on dividend growth could help avoid yield traps.
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Protecting the downside
Short duration and unconstrained fixed-income funds may offer an attractive way to protect portfolios and benefit from volatility in the case of a move higher in yields.
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Building resilience
We favour an approach that goes beyond traditional diversifiers, and offers exposure to real economy trends, quality, secular growth themes, and private markets.
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Future-proofing your investments
The shift to sustainable is a trend which has been supercharged in Europe and shows no signs of stopping.

Sustainable investing in Europe

Our investment conviction is that sustainability and climate-integrated portfolios can provide better risk-adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.

Europe is a global standard bearer in the long-term structural shift towards sustainability, due to economic and social forces as well as a focus from policymakers. The European Green Deal puts sustainability at the heart of the Covid fiscal recovery package, and consumer demand remains buoyant, with Europe recently becoming the number-one region for electric vehicle passenger sales.

The introduction of the Sustainable Finance Disclosure Regulation (SFDR) is a key catalyst for sustainable investing in Europe. We see the standardisation of definitions and concepts as crucial for advancing sustainable investing, with investors seeking increased transparency and data on sustainable risks and opportunities. As a fiduciary investor, we advocate for sound corporate governance and sustainable business practices that result in long-term value creation for our clients. Our investment stewardship team is lead out of Europe, by Sandra Boss, our Global Head of Investment Stewardship. This team’s role is to engage with company management on ESG concerns that threaten corporate value.

Our approach to sustainable investing

Our impact in Europe

We are helping to build savings that will serve a lifetime:

People deserve financial security across their lifetime. As a long-term investment manager, we help millions of Europeans achieve that.

20
years we have been managing money on behalf of Nordic state and occupational pension funds.
100
+ billion of assets entrusted to us to manage on behalf of Nordic clients.

We make investing easier and more affordable:

We know the benefits of investing have been out of reach for too many people. That’s why we are making investing easier and more affordable.

400
+ iShares ETFs registered in the Nordics offering easy access to global and niche markets.
10
is all you need to invest in iShares ETFs and index funds through banks and investment platforms.

We invest for better, more resilient futures:

We invest our clients’ money in companies of all types and sizes in Europe, helping those companies grow and create jobs, which in turn enables the European economy and society to prosper.

125
billion invested in the Nordic region supporting job creation, growth and innovation. 9
500
jobs created by investing in a 47 turbines wind farm on the west coast of Norway. 10

9Source: BlackRock, December 2020

10BlackRock and Guleslettene Wind Farm, December 2020.

We advance sustainable investing:

We advance sustainable investing because our conviction is it delivers better outcomes for investors. Through using 5% of BlackRock’s net revenues from the ICS LEAF series, we offset 120,000 tons of CO2 across Europe helping reduce emissions and fund environmental projects. That’s the equivalent of planting nearly 160,000 acres of forest.11

 

11Source: BlackRock, December 2020

120,000
is the number of tons of CO2 that we offset across Europe in 2020.12
1.5
+billion raised from global investors in sustainable products seeded by Nordic investors.

 12 July 2019 – September 2020

Your team on the ground

Map of BlackRock’s offices in Europe and teams

13 BlackRock, June 2021

We are deeply embedded in Europe, with more than 3,000 employees in 20 offices13 in cities from Athens to Zurich. This gives us local expertise and allows us a more detailed perspective on the areas in which we operate and invest. We share our knowledge, experience, and insights with our clients through our experts on the ground, as shown on the map. These include investment teams, client solutions, technology and thought leadership.

Investment experts

Team Description
Alpha investment Our skilled portfolio managers average 20 years in the industry. Our European Equity team is led by Nigel Bolton, BlackRock’s Global Co-CIO for fundamental equities, and Becci Mckinley Rowe. Our European Fixed Income team is headed by Michael Krautzberger, Head of Fundamental Fixed Income in EMEA.
Alternatives Our local experts seek to find opportunities in hedge funds, private debt, infrastructure and real estate funds.
ETF and index investment Our ETF and index investment professionals are dedicated to providing portfolio building blocks for investors large and small. iShares ETFs make it simple for everyone to invest with efficiency and transparency at a fair price.
BlackRock Sustainable Investing Team dedicated to providing our firm and our clients with a clear picture of the relationship between sustainability issues, risk and long-term financial performance. They act as a central authority on sustainable investing across the investment spectrum.

Client solutions

Team Description
BlackRock Portfolio Analysis and Solutions (BPAS) A team of highly qualified investment consultants who empower clients to gain new perspectives on their portfolios. The team provides clients with the tools and support they need to get closer to their overall portfolio objectives.
Client Portfolios Solutions / Multi-Asset Solutions (CPS / MASS) This team offers clients easy access to fully customisable index and alpha investment capabilities.
Retirement team This team provides direct access to our best thinking on retirement, with insights from our investment and financial-planning professionals.
Capital Markets team This team is responsible for sourcing private investment opportunities, IPOs, and private placements.
Official Institutions Group (OIG) This group partners with central banks, sovereign wealth funds, finance ministries, future generation funds and multi-lateral organizations. It serves as a central point of contact for investment, risk management and advisory services.

Technology

Team Description
Aladdin The world’s biggest investment platform of its kind. Our local experts can help you discover how to use this technology to build better portfolios and lead large scale implementation projects.
Risk: While proprietary technology platforms may help manage risk, risk cannot be eliminated.

Thought leadership

Team Description
BlackRock Investment Institute (BII) This team offers investors insights on long-term asset allocation, the global and local economy, markets and geopolitics.