BlackRock Greater Europe Investment Trust plc (LON:BRGE) have provided the following portfolio update.
All information is at 31 March 2020 and unaudited.
Performance at month end with net income reinvested
| One Month | Three Months | One Year | Three Years | Launch (20 Sep 04) | |
| Net asset value (undiluted) | -10.1% | -14.7% | -0.3% | 19.3% | 365.8% |
| Net asset value* (diluted) | -10.1% | -14.4% | -0.3% | 19.3% | 366.2% |
| Share price | -15.6% | -21.4% | -4.9% | 13.2% | 327.4% |
| FTSE World Europe ex UK | -11.4% | -17.5% | -8.0% | -1.6% | 210.0% |
* Diluted for treasury shares and subscription shares.
Sources: BlackRock and Datastream
At month end
| Net asset value (capital only): | 351.62p |
| Net asset value (including income): | 352.27p |
| Net asset value (capital only)1: | 351.62p |
| Net asset value (including income)1: | 352.27p |
| Share price: | 320.00p |
| Discount to NAV (including income): | 9.2% |
| Discount to NAV (including income)1: | 9.2% |
| Net gearing: | Nil |
| Net yield2: | 1.8% |
| Total assets (including income): | £297.0m |
| Ordinary shares in issue3: | 84,323,101 |
| Ongoing charges4: | 1.1% |
1 Diluted for treasury shares.
2 Based on an interim dividend of 1.75p per share and a final dividend of 4.10p for the year ended 31 August 2019.
3 Excluding 26,005,837 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 2019.
| Sector Analysis | Total Assets (%) | Country Analysis | Total Assets (%) | |
| Health Care | 21.2 | Denmark | 17.8 | |
| Technology | 19.5 | Switzerland | 14.8 | |
| Industrials | 18.4 | Germany | 11.9 | |
| Consumer Services | 11.3 | France | 11.4 | |
| Consumer Goods | 11.2 | Netherlands | 7.6 | |
| Financials | 7.5 | United Kingdom | 6.1 | |
| Basic Materials | 3.2 | Italy | 5.8 | |
| Telecommunications | 3.1 | Sweden | 5.7 | |
| Oil & Gas | 2.1 | Spain | 4.5 | |
| Net Current Assets | 2.5 | Israel | 2.7 | |
| —– | Russia | 2.2 | ||
| 100.0 | Finland | 2.2 | ||
| ===== | Ireland | 2.0 | ||
| Belgium | 1.2 | |||
| Poland | 1.2 | |||
| Greece | 0.4 | |||
| Net Current Assets | 2.5 | |||
| —– | ||||
| 100.0 | ||||
| ===== |
| Ten Largest Equity Investments | ||
| Company | Country | % of Total Assets |
| Novo Nordisk | Denmark | 7.1 |
| SAP | Germany | 6.7 |
| Sika | Switzerland | 6.3 |
| RELX | United Kingdom | 6.3 |
| Lonza Group | Switzerland | 5.4 |
| Kering | France | 5.3 |
| ASML | Netherlands | 5.3 |
| Royal Unibrew | Denmark | 5.3 |
| DSV | Denmark | 4.1 |
| Safran | France | 3.9 |
Commenting on the markets, Stefan Gries, representing the Investment Manager noted:
During the month, the Company’s NAV fell by 10.1% and the share price by 15.6%. For reference, the FTSE World Europe ex UK Index returned -11.4% during the period.
Equity indices globally entered a bear market during the month as the spread and impact of Covid-19 took hold of the economy. With the epicenter of the disease moving to Europe causing social lockdown in most regions in March, we saw large, commensurate actions from both governments and the European Central Bank to support companies and the financial system during this period of stress.
Like most regions around the world, Europe will be in recession in 2020 and earnings downgrades are visible across the entire market. In this context, we have acted to re-underwrite all the positions in our portfolio, stress testing balance sheets and cash flows to ensure company resilience during this period.
The Company outperformed the reference index over the month, driven by strong stock selection while sector allocation was also positive. On a sector basis, the Company’s long-standing underweight position in financials proved positive in the context of a sharply falling market. Banking institutions quickly saw significant stress being priced into their shares as memories of the last recession plagued them.
Our lower allocation to the energy sector also aided performance as the oil price collapsed. Both the Russia/Saudi fallout and fall in demand for oil amidst the Covid-19 pandemic have created further, and potentially longer term, pressures on the oil price.
The health care sector contributed to returns with positions in Novo Nordisk, Lonza and Diasorin being amongst the best performers. Shares in the latter performed well as the company is involved in developing Covid-19 testing kits, while Novo Nordisk and Lonza continued to see strong performance following solid results.
We also saw resilience in luxury goods companies, where evidence is emerging that sales in China are re-accelerating following the lift of lockdowns. Generally, good control over supply in the luxury market also helped our position in Kering. Our holding in Ferrari was also amongst the top contributors.
Select positions in the technology sector aided returns. ASML was amongst the largest contributors during the month as long-term trends supporting demand for its machines remain unchanged. The company updated the market on increased customer demand seeking earlier deliveries on EUV tools, despite these uncertain times.
The worst hit stock over the month was aerospace holding Safran, which suffered due to travel bans applied in many countries. The near-term impact on the business is clearly negative and the industry may have to digest some excess capacity in the medium term, given the uncertainty around the pace of recovery in 2021. However, Safran has a strong position in the narrow-body segment of the market, which is more exposed to domestic rather than international air travel. As travel bans are gradually lifted, we expect domestic travel to recover first. In addition, the narrow-body market was in a favourable supply/demand balance coming into this crisis. In the long term we expect air travel to remain a growing industry and Safran is well placed to capitalise on that growth. Having examined the balance sheet and cashflow in detail, and engaged with management on numerous occasions, we are confident the business can weather the current crisis.
The Company saw a negative contribution from its lower allocation to ‘safe haven’ assets when compared with the reference index. The Company particularly experienced relative losses due to not holding large benchmark constituents, considered less economically exposed, such as Roche, Nestlé and Novartis.
At the end of the period the Company had a higher allocation than the reference index towards technology, consumer services, industrials and health care. The Company had a neutral weighting towards telecoms and a lower allocation to financials, utilities, consumer goods, oil & gas and basic materials.
Outlook
We believe this downturn to be politically induced; a consequence of governments taking actions to preserve life in the outbreak of a global pandemic. Owing to this, we believe an ability to judge economic recovery is likely to come down more to health and disease related data than traditional indicators or outlooks for specific companies, given the low level of visibility management teams currently have. Therefore, we have invested significant resource in the tracking of disease related data by region to understand the potential fallout and indeed speed of recovery. We have already seen tentative signs of recovery in China as the lockdown is lifted, with consumer spending slowly coming back. However, risk remains of a second wave of infection and the ability to starve this off will be important.
While uncertainty remains near term, we have spent a lot of time reviewing our holdings, ensuring these companies have the balance sheet strength to navigate this crisis. Ultimately, we will be guided by our understanding of company earnings and cashflows on a multi-year basis.
BlackRock Greater Europe Investment Trust plc 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.
