BlackRock Greater Europe Investment Trust plc (LON:BRGE) has announced its latest portfolio update.
All information is at 31 December 2022 and unaudited.
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Performance at month end with net income reinvested
(20 Sep 04)
|Net asset value (undiluted)||-1.7%||12.5%||-26.6%||24.6%||580.3%|
|FTSE World Europe ex UK||-0.6%||12.0%||-7.0%||18.6%||345.7%|
Sources: BlackRock and Datastream
At month end
|Net asset value (capital only):||495.50p|
|Net asset value (including income):||495.73p|
|Discount to NAV (including income):||4.9%|
|Total assets (including income):||£500.7m|
|Ordinary shares in issue2:||101,000,161|
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.
|Top 10 holdings||Country||Fund %|
|LVMH Moët Hennessy||France||7.6|
Commenting on the markets, Stefan Gries, representing the Investment Manager noted:
During the month, the Company’s NAV fell by 1.7% and the share price by 1.9%. For reference, the FTSE World Europe ex UK Index returned -0.6% during the period. Whilst Europe ex UK equities were slightly down during December, they finished a very strong 4th quarter, making up some of the 2022 losses.
Both the US Federal Reserve and European Central Bank hiked rates by 50bps, which was widely expected, but pushed back against dovish market pricing of the path ahead, noting much more progress was needed on inflation. In a month that typically sees less stock specific news and lower liquidity, market sentiment was largely driven by these more hawkish comments from central banks.
European natural gas prices have fallen sharply and lower energy prices can help pull headline inflation down, even though core inflation remains sticky. The mild winter so far and measures to reduce demand are keeping gas storage levels relatively high.
Technology, consumer discretionary and materials fell the most while financials, real estate and utilities fared slightly better. During the month, the Company underperformed its reference index, driven by both stock selection and sector allocation.
In sector terms, a higher allocation to the technology sector and consumer discretionary was negative for performance. A lower weight to financials also detracted, although this was more than offset by strong stock selection. The portfolio is overweight to health care, as well as lower allocations to telecoms and materials was positive.
Chemometec was the largest detractor to relative performance in December. Shares came under pressure following the announcement that the current CEO, Steen Søndergaard, will be resigning in 2023. Having met with the CEO and CFO post the announcement, we were reassured by the clear message that the CEO is leaving for personal reasons and will stay on until a successor is found to make sure the handover is smooth. Overall, the business remains on track, well positioned in an attractive, strong market where they continue to focus on top line growth.
Life sciences companies including Lonza and Sartorius Stedim declined on familiar concerns around a normalisation for Covid related revenues, expectations for higher energy costs and a tougher environment for bio-tech funding. We see this as manageable for these companies and not of material concern.
A negative contribution also came from the Company’s semiconductor-exposed names. ASML, BE Semi and ASMi had seen strong gains over the past two months and gave some back in the market’s reaction to central bank hawkishness.
On the positive side, shares in Novo Nordisk continued to rise. Following positive news flow in November – the FDA clearing the way for a key manufacturer to increase supply – the company confirmed they have been able to restock US pharmacies with all Wegovy dose levels before year-end.
Shares in Royal Unibrew continued to recover following the sell-off in previous months. Easing inflation figures and the potential for price increases to follow through in 2023 was taken positively by the market.
The portfolio’s exposure to the banks sector also aided returns, as the industry performed better on the back of a continuation of higher interest rates and a more benign than expected macroeconomic environment. KBC, Bank Polska and Finecobank were all amongst the best performers.
At the end of the year, the Company had a higher allocation than the reference index towards consumer discretionary, technology, health care and industrials. The Company had an underweight allocation to financials, energy, consumer staples, utilities, telecoms, materials and real estate.
After a challenging 2022, we expect equity markets to remain volatile in the near term as macro uncertainty remains elevated. Going into 2023, it will be important to see whether inflation comes down to levels the market can deal with. With energy prices having come down in recent weeks, there is reason to be hopeful this can be achieved. Clarity on the terminal rate of this hiking cycle – and a potential peak – would likely be enough to bring attention back to company fundamentals – the ultimate driver of long-term equity returns.
The market is forward looking and at some point will start to consider what a recovery could look like. For now, European equities remain under-owned and valuations are low. Some areas of the market, particularly within the cyclical sectors, have suffered a significant derating and signs of economic optimism such as easing inflation or a potential China re-opening, could help close some of these valuation gaps. 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, digitisation or decarbonisation. We believe the portfolio is well aligned to many of these structural spending streams.