BlackRock Greater Europe Investment Trust outperforms FTSE World Europe ex UK Index in October

Blackrock Greater Europe Investment Trust plc (LON:BRGE) has announced its latest portfolio update.

All information is at 31 October 2022 and unaudited.

To discover more about the BlackRock Greater Europe Investment Trust click here.

Performance at month end with net income reinvested 

Sources: BlackRock and Datastream 

At month end

1  Based on an interim dividend of 1.75p per share and a final dividend of 4.85p per share for the year ended 31 August 2022.
2  Excluding 16,928,777 shares held in treasury.
3  The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, write back of prior year expenses and certain non-recurring items for the year ended 31 August 2022.

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

During the month, the Company’s NAV rose by 5.5% and the share price by 7.4%. For reference, the FTSE World Europe ex UK Index returned 4.4% during the period.

European ex UK equities rallied in October following a marked sell-off during the previous month. This, combined with hopes that central banks are getting nearer to the end of the rate hiking cycle, saw equities rise during the month. That being said, volatility in markets remains high and we continue to see extremely sharp moves on both macroeconomic and stock specific news.

One positive during the month was European natural gas prices coming down as countries have succeeded in building up storage levels of gas to near full capacity.

Generally, European cyclicals performed better during October, with the exception of consumer sectors where worries over consumer spend weakening and excess inventory weighed on the sector. Energy, industrials and financials broadly led markets higher, while consumer staples and telecommunications lagged the market.

During the month, the Company outperformed its reference index, driven by strong stock selection while sector allocation was neutral.

The portfolio’s lower weight to consumer staples and telecommunications and higher weight to industrials aided returns. An underweight to energy and overweight to consumer discretionary detracted from returns. The Company’s lower weight to financials was negative, although this was more than offset by strong stock selection.

The largest positive contribution came from our positioning within the industrials sector. Shares in Safran rose following robust Q3 results, as air traffic continues to recover. The company delivered a 5% Q3 sales beat versus market expectations, with civil aftermarket up by 36% in Q3, comfortably beating consensus expectations. The aerospace market appears well underpinned with solid demand for the aftermarket service business expected for the year ahead.

Elsewhere within industrials, logistics company DSV also aided returns on the back of risk-on sentiment in markets supporting cyclical assets, as well as decent results, with management confirming they are set to finish 2022 on a strong note.

Stock selection was also strong within the health care sector. Chemometec was amongst the largest stock contributors to portfolio relative performance, as shares bounced back from September’s sell-off. Holding Diasorin was also positive, as was avoiding Roche.

Within financials, a position in Bank Pekao was the top contributor to performance during the month as the sector benefited from positive sentiment around rising rates. Shares in National Bank of Greece and Avanza Bank also contributed positively.

The technology sector overall contributed to returns, although individual stock performance was mixed.

BE Semi was positive for performance after several months of weakness in the stock. Third quarter results were better than consensus on all fronts except orders. Cost cutting measures helped to offset weak sales and protect gross margin at 62.3% versus consensus at 60%.

At the same time, our position in ASM International detracted from relative returns. Shares fell after new US export restrictions on China had a larger impact on the company than the market expected. While Q3 results had been robust and the order backlog remained strong, management communicated a risk of a 40% haircut on China orders due to US sanctions affecting roughly 6% of group sales. On the other side, ASML shrugged off those fears during the month and contributed positively. Europe’s most valuable tech company also delivered strong Q3 results but the impact from sanctions remains to be seen: US and Dutch government officials continue to hold talks on restricting China’s access to advanced chip technologies.

At the end of the period, the Company had a higher allocation than the reference index towards consumer discretionary, technology, industrials and health care. The Company had an underweight allocation to consumer staples, energy, utilities, financials, telecoms, materials and real estate.

Outlook

2022 has been challenging, with concerns over the economic implications of the Russian invasion of Ukraine, rising interest rates and continued supply chain disruptions weighing on equity returns.

We are incrementally more cautious on the environment but see opportunities for attractive returns in select areas. 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, the shift to electric vehicles, digitisation, renewables or the refurbishment of building stock. We believe the portfolio is well aligned to many of these spending streams.

We continue to stay close to our companies which allows us to understand the environment they are operating in. We expect greater dispersion between sector and stock outcomes and with that a need for greater selectivity. In our view this will favour well-managed, well-organised businesses with an element of pricing power and we believe that holding these businesses will benefit our shareholders over the medium to long term.

To discover more about the BlackRock Greater Europe Investment Trust click here.