BlackRock Greater Europe 23 July 2020
Disclaimer
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by BlackRock Greater Europe. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
The managers of BlackRock Greater Europe (BRGE) aim to offer investors a portfolio of high-quality companies across developed and emerging Europe.
The manager, Stefan Gries, aims to identify the strongest ideas in developed Europe generated by BlackRock’s European research team of 18 analysts. As we discuss under the Portfolio section, this involves searching for high-quality companies with unique franchises and sustainable cash flows. Stefan is supported by co-manager Sam Vecht, who focusses on ideas in developing Europe. Typically, this area will make up between 5% and 10% of the total NAV, and it currently sits towards the top end of this range (10%). The two managers decide together when ideas in developing Europe are good enough to get into the portfolio, but developing Europe holdings tend to be shorter-term, more opportunistic plays.
Since Stefan took over the portfolio in June 2017 he has made a point of concentrating the portfolio, which now has just 42 holdings, with the top ten making up over 50% of total NAV. Under his tenure, the performance has been exceptional, with NAV total returns of 37.4%, in comparison to 8.5% from the benchmark FTSE World Europe ex UK. Equally the returns are impressive when compared to the IA and AIC sector returns, as we discuss in the Performance section. In fact, the trust is the strongest performing in the sector since Stefan’s appointment, with an annualised alpha of c. 8.4%.
The trust consistently trades at one of the narrowest discounts in the sector, currently trading at a discount of 3.9%, narrower than the sector average (c. 10.4%), illustrating the popular demand for the trust.
BRGE is a standout trust for investors looking for long-term European exposure. Since Stefan has taken over, BRGE has been the strongest performer in the sector, with Stefan delivering annualised alpha against the benchmark of over 8%. We think this outperformance has been possible due to the increasingly concentrated high-conviction approach Stefan has been taking. Also, strong stock-picking has been responsible for the vast majority of the strong excess returns over the past year. One advantage Stefan has when it comes to picking stocks is the extensive resources of BlackRock, with a dedicated and established team of 18 analysts and portfolio managers working on developed European equities and a further seven on developing Europe.
Investors should be aware that a more concentrated approach can lead to greater volatility of returns in the short term. This has been illustrated over 2020, and the current cyclical nature of the investments has led to high levels of beta over the past three years. However, Stefan does attempt to balance the risk of growthier names by including more defensive, high-quality stocks that also fulfil his investment criteria. Alongside this, he also works with BlackRock RQA teams to ensure that any portfolio risk is deliberate and well diversified.
Currently the trust is trading at a discount of 7.3%. Although this is narrow relative to peers, it is wide relative to its one-year average and in our opinion offers an attractive entry point at this level.
| bull | bear |
| Best performance in the peer group since Stefan took over the portfolio | Potential for short-term volatility given long-term investment horizon |
| High-conviction portfolio but with diverse source of revenues | The discount to NAV is narrow relative to peers |
| Signs of sentiment towards Europe improving with significant policy support | Gearing can exacerbate downside as well as amplify upside |
Fund History
