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BlackRock Greater Europe Trust – December 2021 update

Investment Analyst Josef Licsauer shares our analysis on the manager, process, culture, cost and performance of the BlackRock Greater Europe Trust.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • Stefan Gries and Sam Vecht have several years of combined experience investing in European companies and are supported by a strong team at BlackRock
  • The trust has delivered impressive returns under the tenure of the managers
  • A portion of the trust is invested in emerging European companies which is unique compared to others focused on Europe

How it fits in a portfolio

The BlackRock Greater Europe Trust invests in high quality companies across the European continent, including Switzerland, the Netherlands, Denmark, and France. A portion of the trust is also invested in emerging European countries, including Greece, Poland, and Russia which will increase risk. This is a slightly different approach to some other peers focused on investing in developed Europe.

The managers also have the flexibility to invest in companies of any size, including higher risk small to medium sized companies. We think the trust could be a good choice for exposure to European and emerging European companies or form part of a wider investment portfolio focused on long-term growth. When investing in closed-ended funds you should be aware the trust can trade at a discount or premium to NAV.

Manager

Stefan Gries and Sam Vecht have managed the BlackRock Greater Europe Investment Trust since June 2017 and have several decades of combined experience in the industry.

Gries joined BlackRock's European Equity team in 2008. Since then, he’s worked as an analyst, covering sectors like energy and pharmaceuticals, and has run multiple portfolios. In addition to this trust, he’s also lead and been co-manager of several other European open-ended funds.

Vecht runs a smaller part of the trust, focusing on the eastern European portion, but has been a co-manager since 2004. He’s also Head of the Emerging Europe & Frontiers team, and responsible for a range of emerging and frontier markets funds. This includes BlackRock Emerging Europe and BlackRock Frontiers Investment Trust. Vecht joined BlackRock in 2000 as part of the Global Emerging Markets team.

There have been a few changes within BlackRock's European team over the past few years. That said, we think there are a number of high-quality individuals in the team, which Gries and Vecht can draw support from. Each team member is encouraged to discuss and debate investment ideas, providing challenge where necessary.

Process

The trust’s investment process is simple. Invest in high-quality European businesses that will grow your investment over the long run. But what does high quality actually mean?

The managers use the vast resources of BlackRock and call upon the years of combined experience investing in Europe to help answer this question. They scour the continent looking for companies that typically possess four key traits: They are strong and focused management teams, healthy finances with stable returns, a willingness to invest in growth and a unique product or service that others in the market may struggle to replicate.

As a result, they tend to invest in a concentrated portfolio of companies they have a high level of conviction in. This means each one can have a meaningful impact on performance, and this increases risk.

Holding investments over the long term is another key part of the process. The average period they hold each company for is around five years. The managers believe this focus allows them to benefit from good levels of sustainable growth from the companies they hold. Typically, this means the portfolio turnover is kept quite low. That said, there have been several changes to the fund this year.

During the luxury goods sell-off in August this year, the team took the opportunity to add LVMH to the portfolio. It’s one of the leaders in the luxury goods space currently and has a growing presence in China. They also took advantage of some of the market volatility at the beginning of the year to add to Lonza Group. The Swiss biopharmaceuticals manufacturer has a rich pipeline of biological drugs and a strong position in the industry. They received a contract recently for the Moderna vaccine, so the managers thought it was sensible to top up their holding at a more attractive share price.

Other notable changes included some profit taking by reducing their holdings in Sberbank, Alpha Bank and KBC. These companies enjoyed some strong periods of performance following the success of the vaccine programme.

Investors should be aware that the managers have the flexibility to use gearing (borrowing to invest), which can magnify any gains or losses and increases risk.

Culture

BlackRock is the largest asset manager in the world, with around $9.4 trillion of assets under management globally. The company was founded in 1988 by eight partners including current CEO Larry Fink and is known for both active and passive strategies across the world. Employees at BlackRock are encouraged to hold shares in the company so that they are engaged with helping the company perform well and grow.

Over recent years BlackRock has increased its drive towards stewardship and promoting ESG-based products. BlackRock’s stewardship team look to enhance their transparency by publishing how the company votes in things like shareholder meetings. But they also engage with companies on things like governance or social issues that have a material impact on sustainable, long-term financial performance.

Similarly, the Board of this trust believes that responsible investment and sustainability are integral to the trust's longer-term performance, and works closely with the managers to ensure ESG issues are effectively integrated into the investment process.

Cost

The trust's annual ongoing charge is 1.02%, which is a slight increase from 1.01% in the previous year. This is above the average charge for the AIC's European sector and makes it one of the more expensive options in the sector. Investors should refer to the latest annual reports and accounts and Key Investor Information for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies. Our platform fee doesn’t apply if held in a Fund and Share account.

Performance

The trust has delivered good returns under the tenure of Gries and Wecht. Since Gries was appointed co-manager in June 2017, the trust has returned 132.68%* versus the broader European investment trust index’s gain of 56.10%. A good portion of this performance has been driven by the tailwinds of investing in high quality companies with above average earnings growth, also known as growth investing. Though past performance is not a guide to future returns.

We’d expect the trust to do well in this environment but it could struggle when this style falls out of favour. At the beginning of this year this style fell out of favour with investors as they preferred companies that had previously been overlooked and traded at lower valuations, also known as ‘value’ stocks.

Despite this, around 20-25% of the trust is invested in emerging European companies and although this isn’t true in all cases, a large majority of these companies sit in the value bucket. This meant the trust still benefited, albeit to a lesser extent, from the tailwinds of this investment style when it was in favour. Investments in the Polish bank, Polska Kasa and Russian oil company, Lukoil, drove the performance during this period.

Outside of emerging Europe, Dutch based chemical distributor IMCD and semiconductor manufacturers Besi and ASML were among the top performers.

It hasn’t all been plain sailing though. As growth investing returned to favour, Polish e-commerce platform, Allegro, became one of the worst performing companies over the year. Some of the trust’s travel related holdings including Amadeus IT Group and Safran also performed poorly. The pandemic continues to sap demand by restricting and limiting overseas travel plans.

The trust has delivered returns of 41.07% over the last 12 months, but the managers don’t focus on short-term performance. They aim to outperform over a 3 to 5 year period, so are cautious not to get caught up in the successes of the last two years. This has been a strong period of performance but investors should remember that past performance isn’t a guide to future returns.

Annual percentage performance
Nov 16 -
Nov 17
Nov 17 -
Nov 18
Nov 18 -
Nov 19
Nov 19 -
Nov 20
Nov 20 -
Nov 21
BlackRock Greater Europe Investment Trust PLC 31.07% -1.93% 23.59% 27.65% 41.07%
AIC Investment Trust - Europe 27.92% -6.88% 15.92% 16.05% 20.86%

Past performance is not a guide to the future. Source: *Lipper IM to 30/11/2021.

Find out more about BlackRock Greater Europe Trust, including charges

BlackRock Greater Europe Trust Key Information Document



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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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