BRGE Blackrock Greater Europe Investment Trust Plc

BLACKROCK GREATER EUROPE INVESTMENT TRUST plc (LEI - 5493003R8FJ6I76ZUW55)
All information is at 31 October 2017 and unaudited.

Performance at month end with net income reinvested
 

* Diluted for treasury shares and subscription shares.
Sources: BlackRock and Datastream
 

At month end

1  Diluted for treasury shares.
2  Based on a final dividend of 3.70p per share and an interim dividend of 1.75p per share for the year ended 31 August 2017.
3  Excluding 15,032,985 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 2017.
 

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

During the month, the Company’s NAV rose by 1.8% and the share price increased by 3.9%. For reference, the FTSE World Europe ex UK Index returned 1.5% during the period.

Over October, resources including oil & gas and basic materials saw strong returns. Several defensive sectors, which are less geared to the economic cycle, such as health care and telecoms lagged the market.

The European Central Bank (‘ECB’) announced an extension to its Quantitative Easing (‘QE’) programme to September 2018, although purchases will be cut from €60bn a month to €30bn from January 2018. ECB president Mario Draghi stressed that the move was not a ‘taper’ but merely a ‘downsize’ as a degree of monetary stimulus remained necessary while inflation is below the ECB’s target of close to 2%.

Political risk heightened given that Catalonia declared independence from Spain, the Italian regions of Lombardy and Veneto voted on greater regional independence and the Austrian far-right Freedom Party started talks to form a coalition government.

However, the economic picture remains robust with the European Commission’s monthly eurozone economic sentiment survey rising in October for the fifth consecutive month to reach its highest level since the start of 2001, showing almost no impact from the Catalan crisis.

The Company outperformed the reference index over the month. Sector allocation was the primary driver of returns; stock selection was marginally negative.

On a sector basis the stronger performance came from the lower allocation to the financials sector, and in particular banks. The sector underperformed following the ECB’s announcement to cut the amount of QE purchases whilst extending the time frame upon which they will make such purchases. The latter proved more dovish than the market expected, leading to share price pressure on the sector.

The higher allocation to technology was also beneficial to returns, whilst the greater allocation to health care detracted as the sector suffered poor results releases for the third quarter.

Over the period the poorest performing position was Israeli listed Teva Pharmaceuticals. A competitor of the company, Mylan, received earlier than expected approval for their generic version of Copaxone 20 and 40mg, in direct competition with Teva’s largest drug.

Luxury businesses Remy Cointreau and Kering both contributed positively to performance. Remy reported a 6.2% year-on-year sales growth for the third quarter beating market expectations. Kering was the Company’s top contributing stock over the month after third quarter results showed a continuation of very strong operating trends. The Gucci brand recorded organic sales growth of 49%, significantly above consensus expectations and the company are now guiding to full year margins of 33%.

Whilst the overweight allocation to health care detracted overall, a position in Straumann rallied as it reported 16% organic sales growth year-on-year for the third quarter, raising its full year guidance from low teens to 13-15%.

Stock selection within industrials proved disappointing over October. Finnish shipbuilding company, Wartsila, saw share price pressure as Q3 results underwhelmed. We remain confident in holding the stock as it continues to enjoy strong order intake momentum.

Outlook

The increasing breadth of the global economic expansion continues to provide a positive backdrop for European corporate earnings. The pick-up in sales growth has led to a clear recovery in profits feeding into a rebound in capex spending. With inflation remaining well below target we expect ECB policy to remain accommodative. Long term, with structural and demographic drivers keeping a lid on inflation in the euro area, we believe we can enjoy a sustained period of growth without the need for substantial increases in interest rates. In terms of valuation, European equities are relatively inexpensive when compared with fixed income and especially in terms of dividend yield.

Improving demand growth, a low cost of capital and broad-based resilience in economic sentiment, underpin a positive stance for European equity markets.

14 November 2017

ENDS

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