Investment trusts

About this investment trust

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.

The Company aims to provide capital growth, primarily through investment in a focused portfolio constructed from a combination of the securities of large, mid and small capitalisation European companies, together with some investment in the developing markets of Europe.

Why choose it?

Europe is a rich source of innovation and dynamic capitalism. Active management can uncover its most exciting companies. The Trust invests in global brand leaders, plus smaller companies focused on niche, high growth areas. The Trust looks for high quality, well-capitalised companies with strong management teams that can create real value for shareholders over time. 

Suited to…

This Trust is designed for investors looking to invest in a selection of Europe’s highest quality, fastest-growing companies, irrespective of their size and geography. They must be willing to take on some additional risk to grow their capital over the long term.

Citywire: As at 16 November 2021.
Investment Week: As at 18 November 2021.
Kepler Rating: As at 1 January 2022.

What are the risks?

• 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.
• Overseas investment will be affected by movements in currency exchange rates.
• Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore the value of these investments may be unpredictable and subject to greater variation.
• Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.
• The Trust’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Trust may not be able to realise the investment at the latest market price or at a price considered fair.

Useful information

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.

Fees & Charges

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The Board’s approach to ESG

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.

The Board believes that responsible investment and sustainability are integral to the longer-term delivery of the Company’s success. The Board works closely with the Investment Manager to regularly review the Company’s performance, investment strategy and underlying policies to ensure that the Company’s investment objective continues to be met in an effective, responsible and sustainable way in the interests of shareholders and future investors.

Sustainable investing: BlackRock’s approach

Sustainability is BlackRock’s standard for investing, based on the investment conviction that integrating sustainability can help investors build more resilient portfolios and achieve better long term, risk-adjusted returns. BlackRock believes that climate change is a defining factor in companies’ long-term prospects and that it will have a significant and lasting impact on economic growth and prosperity. BlackRock believes that climate risk equates to investment risk and this will drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in turn is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade.

ESG: integration into BlackRock’s investment management process

Environmental, Social and Governance (ESG) investing is often used interchangeably with the term “sustainable investing.” BlackRock has identified sustainable investing as being the overall framework and ESG as a data toolkit for identifying and informing our solutions. BlackRock has defined ESG Integration as the practice of incorporating material ESG information and consideration of sustainability risks into investment decisions in order to enhance risk-adjusted returns. BlackRock recognises the relevance of material ESG information across all asset classes and styles of portfolio management. ESG information and sustainability risks are included as a consideration in investment research, portfolio construction, portfolio review and investment stewardship processes. The Investment Manager considers ESG insights and data, including sustainability risks, within the total set of information in its research process and makes a determination as to the materiality of such information in its investment process. ESG insights are not the sole consideration when making investment decisions. The Investment Manager’s evaluation of ESG data may be subjective and could change over time in light of emerging sustainability risks or changing market conditions. This approach is consistent with the Investment Manager’s regulatory duty to manage the Company in accordance with its investment objective and policy and in the best interests of the Company’s investors. The Investment Manager’s Risk and Quantitative Analysis group will review portfolios to ensure that sustainability risks are considered regularly alongside traditional financial risks, that investment decisions are taken in light of relevant sustainability risks and that decisions exposing portfolios to sustainability risks are deliberate, and the risks diversified and scaled according to the investment objectives of the Company.

BlackRock’s approach to ESG integration is to broaden the total amount of information the Investment Manager considers with the aim of improving investment analysis and understanding the likely impact of sustainability risks on the Company’s investments. The Investment Manager assesses a variety of economic and financial indicators, which may include ESG data and insights, to make investment decisions appropriate for the Company objectives. This can include relevant third-party insights or data, internal research or engagement commentary and input from BlackRock Investment Stewardship.

ESG integration does not change the Company’s investment objective or constrain the Investment Manager’s investable universe and does not mean that an ESG investment strategy or exclusionary screens has been or will be adopted by the Company. Similarly, ESG integration does not determine the extent to which the Company may be impacted by sustainability risks.

Investment stewardship

BlackRock undertakes investment stewardship engagements and proxy voting with the goal of protecting and enhancing the long-term value of clients’ investments for relevant asset classes. In our experience, sustainable financial performance and value creation are enhanced by sound governance practices, including risk management oversight, board accountability and compliance with regulations. We focus on board composition, effectiveness and accountability as a top priority. In our experience, high standards of corporate governance are the foundations of board leadership and oversight. We engage to better understand how boards assess their effectiveness and performance, as well as their position on director responsibilities and commitments, turnover and succession planning, crisis management and diversity. For further details regarding BlackRock’s work on investment stewardship please refer to the website here.

Fund manager commentary

31 March 2023

Comments from the portfolio managers

Please note that the commentary below includes historic information in respect of performance data in respect of portfolio investments, index performance data and the Company’s NAV performance.

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results.

During the month, the Company’s NAV rose by 3.0% and the share price by 1.7%. For reference, the FTSE World Europe ex UK Index returned 0.9% during the period.

European markets were slightly up despite the extreme pressure US and European banks faced during March. Market attention first focused on the failure of US Silicon Valley Bank and quickly turned to Credit Suisse – which in our view is a completely different scenario. Nevertheless, both stories drove volatility during the month.

Despite the bank turmoil, the European Central Bank increased interest rates by 50bps, continuing their fight against high inflation. Whilst consumer prices in the Eurozone reached their lowest levels in over a year, rising 6.9% in March, compared to 8.5% in February – mainly thanks to falling energy prices, core inflation remains sticky. Excluding energy and food costs, core inflation was up 5.7% in March, slightly higher than the 5.6% we saw in February. Over in the US, the Federal Reserve also hiked rates by another 25bps.

Market leadership came from the technology, health care and consumer staples sectors, as investors fled to tech and more defensive areas. Real estate and financials were the weakest sectors during the month, followed by energy.

The Company outperformed its reference index, largely driven by accurate sector allocation. In sector terms, a lower allocation to financials was positive, as was the zero allocation to both real estate and energy. The Company’s higher allocation to technology, consumer discretionary and health care also aided returns. An underweight position in consumer staples detracted, although this was offset by strong stock selection.

The strongest relative contribution came from the Company’s technology holdings. Whilst there was limited stock specific news, investors moved back into longer duration types of stocks where the medium- to long-term investment cases remain intact. ASMi, BE Semiconductor, ASML and STMicroelectronics were amongst the top performers. STMicro shares were further supported as the CEO spoke at a conference during the month, highlighting a very strong backlog particularly from industrial and autos end markets where STM's chips are used in silicon carbide inverters for electric vehicles.

Novo Nordisk was the largest single stock contributor over the month. Weekly US prescription data for their obesity drugs continued to trend well and shares reacted positively to a successful phase III trial for the high dose oral version of the treatment. Adding oral treatment options, in addition to injections, should help further adoption of this class of drug. Weight loss data from the trial also bodes well for upcoming phase III trials in oral based obesity treatments.

Several consumer stocks were amongst the strongest contributors. Luxury names LVMH and Hermès saw strong share price performance during the month as data showed both companies have had a very strong start to the year.

Within staples, shares in Royal Unibrew were stronger after months of weakness. We believe we have likely seen the trough in earnings downgrades and the combination of a product restock in Q2, positive pricing and tailwinds from commodity prices should aid shares going forward.

Finally, the Company’s limited exposure to banks helped performance. In particular, not owning BNP Paribas and ING Groep was positive for relative returns as all eyes were on the US and European banking sectors during the month. In the US, the collapse of Silicon Valley Bank was a classic bank failure situation for a non-systemic institution and US officials acted quickly to limit contagion. Meanwhile, in Switzerland, we witnessed Credit Suisse being taken over by UBS with an emergency loan and liquidity support from the Swiss National Bank after Credit Suisse’s share price fell dramatically and default protection costs jumped.

Despite limited exposure to the sector, we believe that after 15 years of stringent regulation, restructuring and capital rebuild, the banking system in Europe is in a better position than the turmoil would suggest and certainly is different to the US. We have not seen any significant deposit outflows in Europe, savings rates are approximately twice as high in Europe as the US, and a much higher percentage of European household financial assets are held in cash. In contrast to US banks, European banks have consistently been building deposits and are continuing to grow deposits. Cash deposits in European banks are 4x higher than in 2015 and debt securities are lower than in 2015. In this context, our positions in KBC and Finceobank were the largest relative detractors, as shares were caught up in this fear around the bank sector.

Elsewhere within financials, owning wealth manager platform Allfunds was negative as the company’s board rejected a takeover offer made by Euronext. Not owning a number of more defensive benchmark constituents including Novartis, Sanofi, Nestlé and L’Oreal also detracted.

Outlook

European equities have significantly outperformed other regions over the last six months, as the outlook for Europe has materially improved. The domestic energy crisis has been de-risked with prices down and storage levels high, and as one of the largest exporters to China, many European companies stand to benefit from the country’s ongoing re-opening. On the broader European financial system, despite recent volatility owing to concerns in US regional bank viability and the forced merger of UBS and Credit Suisse, there have been assurances from central bankers and regulators on the sector’s capital position, helping restore some confidence.

Despite year-to-date gains, the set up for the European equity market remains favourable relative to developed market peers such as the US, and European equities are still under-owned and valuations remain attractive.

Whilst there are a number of unknowns from a macroeconomic perspective, we see opportunities for attractive returns in select areas. Corporate balance sheets are in decent shape and in much better positions than in previous downturns. Many companies in Europe have spent the last decade deleveraging balance sheets and interest coverage is significantly higher than during the Global Financial Crisis or other prior periods associated with deep recessions or prolonged bear markets. Corporate spending intentions also remain healthy and this spend is often linked to transformational capex.

Lastly, long-term structural trends and large amounts of fiscal spending via the Recovery Fund, Green Deal and the REPowerEU plan in Europe can 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. We believe the portfolio is well aligned to many of these structural spending streams.

Unless otherwise stated all data is sourced from BlackRock as at 31 March 2023.

Information correct as at 17 April 2023.

Any opinions or forecasts represent an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. 

This information should not be relied upon by the reader as research, investment advice or a recommendation.

Risk: Reference to the names of each company in this communication is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies.

Portfolio manager biography

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.

Stefan Gries is manager of BlackRock Greater Europe Investment Trust plc. He is head of the European Equity team within the Fundamental Equity division of BlackRock’s Active Equity Group. He is co-manager on the European Absolute return (long/short) portfolios as well as on Pan European and Europe ex UK long-only portfolios. Prior to joining BlackRock in 2008, he spent two years at Scottish Widows Investment Partnership. Since joining BlackRock, he has worked both as a portfolio manager and as an analyst covering, at various times, energy, pharmaceuticals and insurance on behalf of the European Equity team. He earned an MA in economics and Spanish.

Board of directors

All the Directors are non-executive and independent of the Investment Manager. The Board as a whole constitutes the Audit and Management Engagement Committee.

Eric Sanderson (appointed April 2013) (Chairman) is a chartered accountant and a banker and was chief executive of British Linen Bank from 1989 to 1997 and a member of the management board of Bank of Scotland in his role as head of group treasury operations from 1997 to 1999. He was formerly chairman of MyTravel Group PLC, MWB Group Holdings, Dunedin Fund Managers Limited and Schroder UK Mid Cap Fund plc. He is presently chairman of JPMorgan Emerging Europe, Middle East & Africa Securities Limited.

Peter Baxter (appointed April 2015) has over 30 years’ experience in the investment management industry. He is an executive director of Snowball Impact Management Ltd, a social impact investment organisation, a non-executive director of Civitas Social Housing plc, and a trustee of Trust for London, and was a member of the Financial Reporting Council’s Conduct Committee. Previously he was chief executive of Old Mutual Asset Managers (UK) Ltd and worked for Schroders and Hill Samuel in a variety of investment roles.

Davina Curling (appointed December 2011) (Senior Independent Director) has over 25 years’ experience of investment management and was managing director and head of Pan European Equities at Russell Investments. Prior to this she was head of European Equities at F&C, ISIS, Royal & SunAlliance and Nikko Capital Management (UK). She is also a non-executive director of Invesco Select Trust plc and Henderson Opportunities Trust plc and a member of the St James’s Place Wealth Management Investment Committee.

Paola Subacchi (appointed July 2017) is an economist, writer and commentator on the functioning and governance of the international financial and monetary system. She is Professor of International Economics and Chair of the Advisory Board, Global Policy Institute, Queen Mary University of London, visiting professor at the University of Bologna, non-executive director of Scottish Mortgage Investment Trust PLC as well as Founder of Essential Economics Ltd. She writes regularly on Project Syndicate.

Ian Sayers (appointed February 2022) (Chairman of the Audit and Management Engagement Committee) is the former Chief Executive of the Association of Investment Companies (AIC), which he became in 2010 on his promotion from Deputy Director General. Prior to that, he was the AIC’s Technical Director, advising members on areas such as taxation, accounting, company law and regulation, as well as having a key role in its public affairs activity. He qualified as a chartered accountant and chartered tax advisor.