Stefan Gries, BlackRock
Updated 25 Nov 2022
Save Article

Disclaimer

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.

  • Allocation to European equities is at record lows, sentiment is extremely bearish and valuations have slumped
  • A number of positive factors that have been overlooked, including the low debt of corporates and consumers
  • Secular trends, such as the energy transition and digitalisation are still in place

At the start of 2022, investors were looking forward to a strong continued recovery in corporate earnings, a normalisation in supply chains and an easing of inflationary pressures after the difficulties of the pandemic. However, the war in Ukraine and the resulting energy crisis, plus rising interest rates, have led to a sell-off in European financial markets amid broad-based fears of an economic slowdown.

Markets have already been characterised by a significant shift from growth to value stocks of a scale not seen since the financial crisis. This has seen some of the best businesses in Europe substantially derated. In our experience, shifts of this size can only be sustained if fundamentals back up those moves in share prices. Over any meaningful time, it is the relative strength of businesses and industries that determine share price performance.

Today, we are in a situation where allocation to European equities is at record lows,1 sentiment is extremely bearish and valuations have slumped. This holds true for some of the best businesses Europe has to offer.

Healthy corporates and consumers

While much of the current debate focuses on when inflation is going to peak and the extent of the recession, there are, we believe, a few positive factors that have been overlooked.

When we speak to companies we hold today, many are not seeing a material slowdown in demand or order books. Their spending intentions also remain in place, often linked to transformation spend, such as digitalisation, reshoring of supply chains or the energy transition.

We believe consumers are in better health than has been suggested, with governments across Europe doing their best to protect households from those severe cost pressures, with measures ranging from capping consumer electricity and gas prices to offering credit and guarantees to power providers at risk of collapse.2 This should provide some cushion for the squeeze in disposable income.

Energy spending

The war in Ukraine has created greater urgency among European politicians to accelerate the energy transition and reduce dependency on imported gas. Europe had been leading the world in its environmental policies. The war may bring forward spending that might otherwise have happened later in the decade.

As investors in Europe, we can capture secular trends, such as improving the energy efficiency of buildings, or the shift to electric transport. The European Green Deal and European recovery plan are directing sizeable investment towards climate initiatives,3 with particular emphasis on refurbishing building stock and digitisation to make the region more competitive. This creates a cushion while global growth is slowing.

The right companies

This is an environment that will test all companies. However, the companies we own are global leaders in their industries. Many do not need a strong European economy to thrive. We invest in companies run by exceptional management teams, with a clearly defined strategy to create value. We favour companies that generate a significant amount of cash and earn good returns on the capital they invest.

This period of high inflation, supply chain disruption and multiple cost pressures has been the ultimate test for management teams. That’s why we pay so much attention to businesses that have pricing power, that have scale in procurement and a strong track record in managing supply chains. The volatility of the last few months has given us the opportunity to add to some of the portfolio’s existing, high conviction stocks.

We don’t have a crystal ball and near-term, the market remains incredibly uncertain. However, a lot of bad news is already reflected in market sentiment. For the long-term investor, volatility creates an opportunity to buy valuable assets at much lower valuations. The regime of ‘lower for longer’ interest rates may be gone, and the world is still changing around us.

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 September 2022 and may change as subsequent conditions vary.

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

1Source: Emerging Portfolio Fund Research, 31 August 2022

2Reuters, 14 September 2022

3European Commission, 22 September 2022

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.

© 2022 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

MKTGH1022E/S-2450002

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.