Stefan Gries, BlackRock
Updated 17 Jun 2022
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This is a non-independent marketing communication commissioned by BlackRock. 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.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The European economy is undoubtedly starting to show cracks in the face of the Ukraine crisis. In Germany, the government’s council of economic advisers has halved its projections for economic growth, with one council member saying that the risk of recession was “substantial”1. European Central Bank President Christine Lagarde has also warned on how a prolonged conflict could damage European growth.

This is certainly a concern for European companies. We have been looking hard at the companies in our portfolio to try and understand how they could be affected by rising energy costs and any knock-on effect on consumer demand. However, we believe it is also worth noting that the strength in the Eurozone economy has never been a prerequisite for the right companies to make progress.

As it stands, we are perhaps less pessimistic about the region’s economic prospects than some of the more bearish analysis suggests. Certainly, the crisis in Ukraine will be a dent to growth, but the region was coming from a relatively strong position of mounting recovery. Equally, corporate earnings have so far held up relatively well in spite of the challenging environment. However, it is not necessary to be bullish on the region’s prospects to find investment opportunities within it.

Operational vs share price performance

Through 2021 and in the current crisis, it has been vitally important to distinguish between the operational performance of companies and their share price performance. While share prices have seen significant volatility, the companies we hold have delivered well on their strategies. 2021 was a formidable test for management teams, but they have rewarded our confidence.

If operational performance improves at the same time as share prices are falling, it may also present an opportunity for active investors. The industry has seen capital exit from European funds over the past few months on fears of contagion surrounding the Ukraine crisis. Higher quality companies with earnings relatively unaffected by a weakening economic picture have been sold down alongside more vulnerable companies.

Nevertheless, we do not ignore the economic implications of the crisis. In particular, the Ukrainian conflict is likely to push inflation higher, as energy and agricultural prices rise. We are also seeing rising costs in the steel sector because Russia and Ukraine are exporters of steel. We had thought that inflationary pressures would start to ease in the second half of this year and this makes the direction of inflation more uncertain.

Pricing and procurement power

There are ways to deal with this in a portfolio. For example, it is even more important to find companies with pricing power. We want to ensure our portfolio holdings can pass on input costs to customers and negotiate effectively with suppliers. Scale in procurement means a company will be a priority customer for suppliers. Their supply chains are not as vulnerable to disruption. This should give a clear competitive advantage.

While a buoyant economic climate floats all boats, a more difficult climate requires greater selectivity. Those companies that are depending on growing consumer spending, for example, are likely to be vulnerable in this situation. We look to back business that should be resilient in the face of economic uncertainty, with growing end markets that are relatively insensitive to the economic climate.

Growing markets

This leads us to specific areas, such as digitisation or electronic vehicles. The crisis may accelerate progression to net zero, both as a result of greater urgency from policymakers, but also as consumers speed up adoption of electric vehicles. Equally, sectors such as semiconductors are seeing a long-term structural increase in demand that should endure whatever the economic weather.

In unstable times, we see real danger in aligning a portfolio with growth or value, or to the outcome of a macroeconomic event. On the BlackRock Greater Europe Investment Trust plc, we look to focus on what we can know and understand - companies with strong fundamentals. The economic environment may be challenging, but great European companies can thrive even in difficult conditions.

Stefan Gries
Co-Manager, BlackRock Greater Europe Investment Trust plc

1 https://www.reuters.com/world/europe/cracks-widen-euro-zone-economy-war-ukraine-rages-2022-03-30/

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of May 2022 and may change as subsequent conditions vary.

Risk Warnings

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

Trust Specific Risks

Exchange rate: The return of your investment may increase or decrease as a result of currency fluctuations.

Emerging Markets: Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore, the value of these investments may be unpredictable and subject to greater variation.

Liquidity: The Fund’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme the cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Gearing: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Important Information

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the fund specific risks in the Key Investor Document (KID) which gives more information about the risk profile of the investment. The KID and other documentation are available on the relevant product pages at www.blackrock.co.uk/its. We recommend you seek independent professional advice prior to investing.

This material is marketing material. The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange.

The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

The BlackRock Greater Europe Investment Trust plc currently conducts its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

Any research in this material has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This material is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

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