BlackRock Greater Europe – off to a flying start

• Stefan Gries and Sam Vecht have aimed to tighten up the trust's investment process
• So far this has led to a period of good returns
• They currently focus on areas such as luxury goods and aerospace companies

Stefan Gries and Sam Vecht took over management of the BlackRock Greater Europe Investment Trust in June 2017, and they’ve since put their own stamp on the portfolio.

Their investment process is all about quality. They look for high-quality companies they think can grow their earnings over the coming years. These companies should do something unique within their area of the market – this could help them fend off competition and raise prices for products or services that customers are unable to locate elsewhere. They should also be run by a quality management team that has a good record of reinvesting profits in the business to boost future growth potential.

The managers have tightened up this process since taking over the trust, and focus on their highest-conviction ideas. The number of companies in the trust has since reduced, which means each one could have a more meaningful impact on performance. This increases risk though.

The bulk of the trust is managed by Gries, who invests in developed European markets, such as Denmark, Switzerland, France and Germany. Vecht takes charge of the rest. He can invest up to 25% of the trust's Net Asset Value (NAV) in emerging European countries, such as Russia and Poland. Around 7% of the trust currently invests in these markets and we think this part of the trust helps differentiate it from many of its peers, though investing in emerging markets increases risk.

The managers' use of gearing (borrowing to invest) also increases risk. Potential investors should refer to the latest annual report & accounts for details of the risks and charging structure.

Getting off to a good start

So far it seems the managers have had a positive impact on the trust. Since taking it over, the trust's grown 31.7%* compared with 9.8% for the FTSE World Europe ex UK Index, in share price terms. Past performance isn't a guide to future returns though.

Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2019

The trust's performance was particularly strong in 2019. One of the top-performing investments was Sberbank, the Russian banking and financial services company. Its shares rose following easing sanctions against Russia and improving company earnings. The investment was sold once the managers felt the shares had reached a price that no longer offered as much growth potential.

In the consumer space, Ferrari, Adidas and Royal Unibrew, a Danish brewing and beverage company, performed well. The managers also increased exposure to the consumer goods sector last year. Royal Unibrew was a new investment, while they also added to existing investments in Ferrari and luxury goods company Rémy Cointreau. That said, they sold an investment in Unilever on the back of reduced confidence in the company's ability to improve profits and make important cost savings.

Managers' Outlook

Gries and Vecht have a fairly upbeat outlook for the European economy. But they're mindful of the potential impact of global trade disputes, particularly any escalation between the US and China. For example, they think trade troubles have created disruption across supply chains (the network of businesses, people and other resources involved in getting a product from the supplier to customer). It could also delay any spending or investment companies would normally make to try to grow or evolve their businesses.

Overall, the managers continue to focus on the prospects for individual companies that could continue to generate good cash flows, regardless of wider economic issues. They currently have a preference for areas such as luxury goods and aerospace companies, and avoid those they think face longer-term challenges, such as autos and banks.

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