BlackRock Greater Europe 10 June 2021
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.
BlackRock Greater Europe (BRGE) offers investors a portfolio of pan-European equities, allocated through a high-conviction and wholly bottom-up process. BRGE is led by Stefan Gries, who manages the developed Europe allocation, and Sam Vecht, who manages the emerging Europe allocation (currently 9% of BRGE’s portfolio). The managers benefit from BlackRock’s substantial roster of dedicated European equity analysts.
Stefan and Sam’s philosophy is one of long-term bottom-up investing, with little attention paid to macroeconomic or country-specific risk factors. They also approach investing as if they were business owners, with particular attention paid to a company’s earnings and cash flow, as well as its ability to offer a unique business proposition. While BRGE’s one-year turnover has begun to normalise to its pre-pandemic norm, the team have taken advantage of the global rotation to value from growth to add new positions in growth stocks at reduced valuations. The managers are generally bullish around the recovery in Europe’s consumer spending, highlighting the increased tailwinds from the post-crisis stimulus.
BRGE has taken the crown of the best-performing European investment trust over one, three and five years. This has been a period of impressive risk-adjusted performance, whereby its five-year Sharpe ratio of 0.92 far exceeds the benchmark’s Sharpe of 0.58. Likewise, its high alpha and information ratio show to us the successful stock-picking of the team. We cover this in more detail in the Performance section. BRGE is now one of the few European trusts trading at a premium, likely as a result of its sector-leading performance and the tailwinds supporting the European economy, as we describe in the Discount section.
In our view, BRGE’s success is built on some of the classic properties of a successful bottom-up strategy. This is not just due to the substantial resources available to the trust thanks to its being managed by one of the largest analyst teams at the world’s largest asset manager, or thanks to the team’s sophisticated strategy. It is also due to their disciplined approach to long-term investing, maintaining conviction through the market cycle and thus being willing to hold stocks through periods of enhanced volatility.
While past performance should not be used to extrapolate future results, BRGE’s consistent outperformance across both the near and the long term is, in our opinion, evidence of Stefan and Sam‘s successful execution across various market environments. It also demonstrates that even though BRGE’s process can be associated with higher volatility, it has been more than compensated for by its superior returns.
We believe investors can utilise BRGE in two ways, both as a core exposure to Europe given its ability to invest in both developed and emerging Europe, and as a source of alpha thanks to Stefan and Sam’s successful benchmark-agnostic approach to stock-picking. Investors should also be conscious of the clear quality growth bias of the portfolio, a style which may underperform in a prolonged value rally or rising interest rate environment.
|Sector-leading performance, with strong evidence of successful stock-picking
|Currently trades at a premium to its peers
|Disciplined and high-conviction approach to long-term investing
|May underperform during value-driven markets
|Able to invest across the entire continent
|Investment approach can lead to higher volatility