BlackRock Greater Europe 10 November 2023
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BlackRock Greater Europe (BRGE) targets capital growth by investing in a portfolio of European quality growth companies across the market cap spectrum. The team managing the trust use a stock by stock, sector by sector selection process, which has produced a Portfolio exposed to a number of long-term secular growth trends, and typically has low turnover and long holding periods.
The trust has a long-term track record of outperformance, with an NAV total return of c. 49% over the last five years, outperforming the AIC Europe peer group, which has averaged c. 31%. This is in spite of underperformance in 2022, which was a difficult year for any equity strategy with a bias to growth. More recently in 2023 the trust has performed in line with the peer group and comparative indices.
Stefan Gries has managed BRGE since June 2017, having been with BlackRock since 2008. Stefan is head of the European equity team, a 22-strong team of portfolio managers, sector analysts and data scientists working within BlackRock’s Fundamental Equity division. From the end of September 2023, Alexandra Dangoor joined Stefan as co- manager, having worked in the European equity team since 2019 after two years in BlackRock’s graduate rotation program.
BRGE trades at a Discount of c. 7%, narrower than its peer group average of c. 10%. BRGE’s board has made active use of share buybacks this year with the objective of limiting the discount.
BRGE has a relatively low Dividend yield of 1.3%, but nevertheless the board has progressively increased the dividend since BRGE’s inception, occasionally, such as in 2021, utilising reserves but largely paying a covered dividend.
When we previously met the team at BRGE at the outset of this year, we said that we expected “equity markets in 2023 to become more discriminating and therefore for portfolios of high-quality companies with real pricing power to potentially outperform.” It’s probably too soon to assess that statement . That said, it is perhaps a surprising fact that BRGE’s NAV and its benchmark have risen c. 7.0% year to date, as investor sentiment remains quite negative towards equities generally. Benchmark heavyweight Novo Nordisk, which has been difficult to avoid reading about this year, has risen over 30% and provides only a partial explanation for the stealthy rise in European markets, with many European companies performing better than expected.
Despite this, investors continue to be net sellers of European equity funds, albeit much more slowly than in 2022, and in our view, this is probably as much to do with the continued switch into fixed interest securities, as it is to do with any particular negative sentiment to Europe. This puts the long-term equity investor in an interesting position, as there’s obviously a logic to investors buying more bonds now that yields are so attractive, but ultimately the need for real returns will reassert itself, and low valuations for European equities won’t persist forever. BRGE is well positioned to capture any recovery in those valuations and in the meantime is invested in a portfolio of companies making steady positive progress.
- Strong long-term performance record
- BRGE’s discount has been relatively stable which some investors may prefer
- BRGE is predominantly a large cap trust, but all-cap mandate provides for wider opportunity set
- Economic data from Europe is weak and may continue to impact on investor sentiment
- Some investors may prefer wider discount opportunities
- Relatively low yield