Transcript
Speaker: Welcome to Uncovering Trusts, a podcast by The Edison Group, a content-led IR business integrating analyst content, digital targeting and investor engagement. Tune in to find interesting investment ideas and to stay on top of what's happening in the investment company sector.
Speaker: I'm your host, Will Manuel, and today I'm joined by Milos Pabst, Director of Investment Trust Content at the Edison Group, who will talk about the BlackRock Greater Europe Investment Trust, whose ticker is BRGE.
Speaker: Milos, thanks for joining us today. Hi, Will. Great to be here. Great. So regular listeners may remember that our last discussion about BlackRock Greater Europe was one of our earliest podcasts back in March 2024.
Speaker: ah So for the benefit of those less familiar with the trust, can you start with a brief introduction? Sure. um Managers Stefan Grease and Aleksandre D'Angur aim to generate capital growth from a portfolio of European companies, excluding the UK, across the market cap spectrum.
Speaker: So around 20% of the fund is invested in small and mid-cap firms, with a majority of around 80% in large-cap stocks. um Although the managers are permitted to invest in emerging European companies, currently all holdings are firms that are listed in developed countries where they are finding the most attractive opportunities.
Speaker: Okay, so um to give some perspective, can you provide um some information about the current investment backdrop?
Speaker: Yes, of course. so Interestingly, i according to the managers, the structure of the European stock market has changed over the last decade with higher weightings in capital goods, semiconductors in pharma, biotech and life sciences stocks, and so lower allocations to energy banks and telecom companies.
Speaker: They consider that these changes have led to a higher quality European market. European equities remain attractively valued versus history in both absolute and relative terms. The region has been well unloved by global investors who in recent years have favored the US, which now makes up around 70% of global indices.
Speaker: um As we all know, the magnificent magnificent seven large-cap technology stocks fared particularly well, um benefiting from investor fears of missing out, which added to their share price upward momentum.
Speaker: However, 2025 is looking somewhat different. um While the US stock market has been hitting new heights with the broader stock market leadership, which is a healthy development, global investors are seeking out opportunities as well. um This may be due to concerns about US President Trump's second term in office, for instance.
Speaker: At the time of recording, year to date, in local currency terms, the S&P 500 is broadly flat, with the technology-heavy Nasdaq Composite Index down by around 4%. um However, there is a notable performance gap between the US and the UK, which is up around 4%, and the European market, which is rallied by around 11%.
Speaker: ah This sentiment shift could be just the beginning of a more sustained rally in European shares. Interesting. So um just returning to the trust, what does BlackRock Greater Europe offer investors?
Speaker: and so Stefan and Alexandra seek what they consider to be the best businesses that are based in Europe. So investors do not necessarily need to have a positive view on the European economy as a whole to consider the trust.
Speaker: They focus on companies with a unique product or service that generate high and predictable returns on capital ah with options to deploy cash in profitable growth opportunities and the management team with a track record of value creation.
Speaker: ah The managers build their macroeconomic views using fundamental insights rather than buying into the consensus narrative. um They invest for the long term, acting as investors in businesses rather than just traders in shares.
Speaker: In aggregate, the fund has a cyclical bias, so should perform relatively well in anticipation of and during periods of economic improvement. Sector allocat allocations are the result of bottom-up stock selection, um so are markedly different from those of its reference index, with a notable overweight in industrials and a below-index weight in financial stocks, as examples.
Speaker: There are four market sectors that have no representation in the fund, namely consumer staples, energy, telecoms and utilities, so which together make up more than 15% of the reference index.
Speaker: While the mandate is focused on capital growth rather than income, i would note that the Trust's board employs a progressive dividend policy, and the annual dividend has grown every year since the Trust was launched in 2004.
Speaker: And finally, in common with many other investment companies, BlackRock Greater Europe's share price discount to NAV is currently wider than its historical averages, which provides additional upside potential when investor sentiment improves.
Speaker: Thank you. So um can we please move on to BlackRock Greater Europe's portfolio and provide examples of some recent changes? Sure. um The Trust's top 10 holdings make up around 50% of the portfolio across a diversified range of industries.
Speaker: This is held by the manager's ability to draw on the extensive resources of BlackRock's European investment team. A relatively new addition to the fund is L'Oreal, which the largest global cosmetic company with a diverse product portfolio ranging from mass market to luxury.
Speaker: Its ah ongoing R&D and technology and data analytics provide a competitive advantage, while continued expansion in emerging markets provides growth opportunities and potential for margin expansion as customers aspire to premium brands.
Speaker: ah DSV was sold after being in the portfolio since 2016. um ah The emergence of red flags lowered the manager's conviction in the investment thesis. The company announced a $10 billion dollars exclusive logistics joint venture with Saudi's NEOM city project, which raised concerns about corporate governance, capital intensity, and a shift away from DSV's core strategy, along with execution risks.
Speaker: um Also, the highly regarded CEO stepped down after 15 years and DSV's organic growth was negatively affected by lackluster global trading volumes. Right. And um are there any particular themes represented in the portfolio?
Speaker: Yes. So Stefan and Alexandra have highlighted three areas of the market that they believe can transcend transcend short-term political and economic disruption. Semiconductors, luxury goods and healthcare.
Speaker: In semiconductors, Asia has dominated, but European companies are now taking on greater importance. Semiconductors are an integral part of long-term growth areas such as obviously AI, electric vehicles and smart devices.
Speaker: um Hence, there is increasing demand for smaller, faster and greener chips and nations are racing to secure adequate supply chains. um Secondly, Europe with around the two thirds share dominates the global luxury goods market.
Speaker: Many of the largest European companies operate in this sector, including LVMH, Ferrari and MS International. These businesses can generate margins that are comparable to those of major technology companies.
Speaker: um One of the important long term growth drivers for luxury goods is the rising rising Asian middle class. um However, in the short term, Chinese economic weakness is having a negative view effect on business trends in the region.
Speaker: um The Trust's healthcare holdings are supported by aging European populations, which are obviously creating increased demand for healthcare products and services. As discussed in our recent thematic piece on healthcare-focused investment companies, um industry innovation is high, um such as for GLP-1 drugs, which were prescribed for diabetes patients and are now being used in the treatment of obesity, as well as being trialled for the treatment of the range of other conditions.
Speaker: Yes, of course. um So moving on, how does BlackRock Greater Europe stack up versus its peers? Following um Henderson European Trust's merger with stablemate Henderson Euro Trust, there are now just six companies in the AAC Europe sector.
Speaker: BlackRock Greater Europe is one of the five categorized by Morningstar as a large-cap growth fund, although I would note that each of the respective managers have different investment approaches. The trust has one of the more concentrated portfolios with around 35 names and, unsurprisingly, given its growth mandate, BlackRock Greater Europe's dividend yield is below the peer group average.
Speaker: Importantly, NAV total return remains top of the peer group over the last decade. that That's encouraging. um and so And how has the fund performed over shorter time periods? um Stefan took over management of BlackRock Greater Europe in 2017, and the Trust's relative performance improved significantly over a multi-year period.
Speaker: um Unfortunately, in 2022, performance was negatively affected by macroeconomic factors, as central banks raised interest rates during a period of high inflation, which led to a derating of growth stocks.
Speaker: ah BlackRock Greater Europe's relative performance has since stabilized and at last has outpaced the European market over the last five years and is significantly ahead over the last decade.
Speaker: Okay, thank you for the refresher on this high-quality European equity fund i look forward to focusing on another investment company in a couple of weeks' time you've been listening to uncovering trust ah podcast by the edison group you want to find out more about blackro greater europe investment trust and other companies we cover please visit w w w dot edison group so com
