Results analysis: BlackRock Greater Europe

• BlackRock Greater Europe Investment Trust (BRGE) has recently announced its 2021 financial year end results, as of 31 August 2021. Over that 12-month period BRGE managed to generate an impressive NAV total return of 49.4%, and a share price return of 56.8%. This represents a substantial outperformance of its benchmark, the FTSE Europe ex-UK index, which returned 27.4% over the same period.
• Over the last one, three, five, and ten years, BRGE has been the best performing European equity trust within the AIC Europe peer group, reflecting the strength of the team’s long-term approach to bottom-up equity investing.
• BRGE’s consistent premium to NAV over its financial year (an average of 0.1%) has enabled  the board to issue shares to a value of £72,562,000 , a figure that represents 10% of BRGE’s current NAV.
• While BRGE’s sole objective is capital growth, the board has proposed a final dividend of 4.55p per share, which makes the total 2021 FY dividend 6.30p per share, a 2.4% increase on the prior year’s.
  
  

  Kepler View

  We think BlackRock Greater Europe’s (BRGE) performance show the advantages a disciplined, long-term approach to stock picking. Despite the varied market environment over the last 12 months (from a strong value rally to inflation fears, to concerns over a resurgence of COVID-19) the team have remained unfazed, demonstrating their commitment to their holdings and their own investment thesis. There is no greater example of this than the team’s holding of ASML, the manufacturer of semiconductor fabrication equipment; a five-year holding for the trust as well as its largest current position. Over BRGE’s financial year, ASML has ranked as one of its biggest contributors to performance, alongside other semiconductor businesses like BE Semiconductor and VAT Group, thanks to its high pricing power and the global semiconductor shortage leading to a surge in demand.

  Despite the outperformance of value stocks during the first quarter of 2021, BRGE’s growth-focused style of investing has seen a strong resurgence, more than counteracting the earlier headwinds it faced with the ‘reflation trade’. The BRGE team remark that Europe has seen one of its strongest quarterly earnings seasons in its history, with many of BRGE’s holdings counted amongst those reporting strong results. We think this evidences the strong secular growth trends underpinning BRGE’s portfolio, allowing their holdings to generate strong returns regardless of the economic environment. Other companies which have contributed to returns include Netcompany Group, one of the team’s ‘hidden gems’, involved in the modernisation of IT systems in both the public and private space long before the pandemic began to drive such change. Other examples include Sika, the global leader in construction and industrial chemicals, and DSV Panalpina, the logistics and transport group.

  The effectiveness of the team’s stock picking is made apparent by its long-term returns: not only does it rank as the best performing European investment trust over one, three, five, and ten years (as at 05/11/2021) but it also has enviable risk/adjusted returns;its five year Sharpe ratio (1.1) and information ratio (1.4) are the highest of its peers over the last five years, indicating it has generated the strongest risk/adjusted returns as well as value-add by BRGE’s managers. BRGE’s peer-group leading performance has, in our opinion, been the main contributor to the trust’s premium (currently 1.6%). BRGE is the only European equity trust to trade above par and has largely traded on a premium since the start of 2021. We think this is warranted given the BRGE team’s demonstrable ability to generate substantial outperformance during a period of economic uncertainty.

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