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BlackRock Greater Europe Investment Trust plc

BlackRock Greater Europe Investment Trust plc share price, company news, analysis and interviews

The Company aims to provide capital growth, primarily through investment in a focused portfolio constructed from a combination of the securities of large, mid and small capitalisation European companies, together with some investment in the developing markets of Europe.

Europe is home to some of the world’s most dynamic and exciting companies. Targeting capital growth, we invest across high-quality small and large companies in the region, including fast-growing companies in Emerging Europe. The Trust’s experienced management team focus on identifying high quality companies that can be held for the long term.

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BlackRock Greater Europe Investment Trust remain optimistic about prospects of portfolio companies

BlackRock Greater Europe Investment Trust plc (LON:BRGE) has announced it latest portfolio update.

All information is at 31 October 2023 and unaudited.

To discover more about the BlackRock Greater Europe Investment Trust click here

Performance at month end with net income reinvested 

  OneMonth ThreeMonths OneYear ThreeYears Launch(20 Sep 04)
           
Net asset value (undiluted) -4.1% -12.4% 10.5% 15.7% 604.2%
Share price -5.6% -14.5% 7.4% 11.5% 555.9%
FTSE World Europe ex UK -3.0% -6.4% 12.0% 32.5% 365.0%

Sources: BlackRock and Datastream 

At month end

Net asset value (capital only): 506.31p
Net asset value (including income): 511.56p
Share price: 471.00p
Discount to NAV (including income): 7.9%
Net gearing: 6.7%
Net yield1: 1.4%
Total assets (including income): £515.7m
Ordinary shares in issue2: 100,812,161
Ongoing charges3: 0.98%

1  Based on a final dividend of 4.85p per share for the year ended 31 August 2022 and an interim dividend of 1.75p per share for the year ending 31 August 2023.

2  Excluding 17,116,777 shares held in treasury.
3  The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, write back of prior year expenses and certain non-recurring items for the year ended 31 August 2022.

Top 10 holdings Country Fund %
Novo Nordisk Denmark 9.3
RELX United Kingdom 6.6
ASML Netherlands 6.1
LVMH France 6.0
Hermès France 4.3
BE Semiconductor Netherlands 4.0
Safran France 3.8
STMicroelectronics Switzerland 3.7
Ferrari Italy 3.7
DSV Panalpina Denmark 3.4

Commenting on the markets, Stefan Gries and Alexandra Dangoor, representing the Investment Manager noted:

During the month, the Company’s NAV fell by 4.1% and the share price declined by 5.6%. For reference, the FTSE World Europe ex UK Index returned -3.0% during the period.

European ex UK markets lost ground for the third consecutive month. So far, the Q3 earnings season has seen more earnings downgrades than the market had anticipated despite consensus numbers having been revised down ahead of results season. Activity levels appear to be slowing in Europe and the US. Markets have been extremely volatile and investors have been nervous which has led to extreme share price reactions on company updates. The market is still going through an adjustment process of what it means to operate in a higher rate environment.

Global bond markets continued to sell off with the 10-year German Bund yield rising to its highest level since 2011 and the US 10-year Treasury to its highest level since 2007. The war in the Middle East has further increased geopolitical risks and put a risk premium on equities. As with all geographical risks, we monitor the situation very carefully.

Towards the end of the month, inflation data came through better than expected: the Eurozone CPI fell to 2.9% in October (versus 3.1% expected) which was the lowest number since mid-2021.

Utilities delivered returns in positive territory while all other sectors fell in absolute terms. Cyclical sectors sold off, as did health care given a number of stock specific earnings misses in the sector.

The Company underperformed its reference index during the month, driven by negative sector allocation and stock selection.

In sector terms, the Company’s lower exposure to energy was negative as the war in the Middle East moved oil prices higher throughout the period. The Company’s zero exposure to utilities was also negative for active returns as the sector held up better than the falling market.

The Company benefited from an overweight allocation to IT as well as an underweight to health care, although stock selection was challenged in those sectors.

The largest drag on performance came from the industrials sector with a position in DSV being the largest detractor. Shares slipped as the company a) changed the CEO and b) announced a $10bn exclusive logistics joint venture (JV) with Saudi’s NEOM city project. The JV is focused on providing logistic services for NEOM for decades to come and DSV have a 49% ownership. These announcements led to concerns over the capital intensity of the project, as well as a shift in business strategy. Having discussed these issues in great detail with management, we are somewhat reassured that the deal is financially solid and DSV have protection mechanisms in place should the project disappoint.  However, there are a number of political and ESG risks, which means we are reviewing this position carefully. 

Negative contribution during the month came from the health care sector. Shares in Lonza dropped after management significantly lowered earnings expectations for 2024. The drug manufacturer warned that Moderna’s decision to ramp down production of their Covid vaccine due to low demand, would materially impact next year’s revenue. Next year’s margin is now expected in the high 20s rather than low 30s. Some of this can be attributed to mis-management, but we also recognise that unlike in sectors such as industrials, the life science and pharma industry is not used to big inventory cycles and the post-Covid period has been very unique. We reduced the position reflecting a weaker earnings outlook and lower conviction.

Disappointing news also came from Sartorius Stedim, as they downgraded full year targets and reported lower than expected sales and earnings for the first nine months of the year. While management believe they have started to see some signs of customer order recovery, the destocking cycle is materially longer than investors expected and we sold the remaining position.

A holding in STMicro detracted from relative returns. The company’s Q3 results showed a small beat on sales and margins compared to consensus, but shares sold off on a marginally lower guidance for next quarter. However, in the same sector, shares in BESI and ASML contributed positively.

The Company’s position in Novo Nordisk was amongst the top contributors to active returns in October as the company released a number of encouraging updates. Positive efficacy results in their phase 3 FLOW trial led to an early completion, with full results now expected in H1 2024. This trial is looking at injectable semaglutides as an adjunct to standard of care for kidney disease. Following the successful SELECT trial earlier this year, looking at material adverse cardiovascular events, the FLOW trial is another example highlighting the breadth this class of drug touches beyond the headline use in weight loss. The company also released a positive pre-announcement that saw their full year 2023 sales outlook raised to +32-38% (previously +27-33%) and operating profit growth guidance raised to +40-46% (previously +31-37%).

The Company’s luxury positions contributed positively to relative performance over the month, with both Hermès and Ferrari outperforming. Hermès posted a strong Q3 result with sales growth beats in most divisions, and in every region, leading to +15.6% group level growth versus consensus at +13.6%. Meanwhile, Ferrari shares were higher on anticipation of a positive update when the company reports in early November. Not owning Mercedes was also positive.

Finally, data solutions provider RELX was also amongst the top contributors to relative returns, proving its worth as a defensive asset. Furthermore, RELX delivered robust Q3 results and reiterated guidance.

Outlook

The noise around market moves seems to increase with every passing year. We make no attempt to predict to the basis point next quarters’ GDP, inflation, or unemployment number. Nor do we pay much heed to top-down indicators or what they may reveal about the health of the global economy.  From our point of view, the world finds itself currently in the midst of several transitions: Covid to post Covid, inflation to disinflation, low interest rates to high interest rates. These dynamics must be considered when assessing the health of the global economy and the prospects for equity markets. Various end markets may continue to imply weak demand as inventories are run down, while others – perhaps those associated with Chinese real estate – may have more prolonged problems. But assessing the economy from the bottom-up, company by company, we see no reason for investors with a reasonable time horizon to be alarmed. Corporate balance sheets are strong after 15 years of deleveraging, margins remain at healthy levels and we may be at the foothills of an increase in capex spending resulting in a ‘modern era industrial revolution’. Similarly, household debt relative to assets is low in large economies, interest rate sensitivity is lower than in previous cycles and real wages are growing.

As investors we must be forward looking, we must anticipate areas of enduring demand and identify those special companies whose characteristics enable them to capitalise on this demand and, in doing so, benefit their stakeholders and shareholders. We remain optimistic about the prospects of companies held in our portfolio.

To discover more about the BlackRock Greater Europe Investment Trust click here

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BlackRock

BlackRock BRGE delivered a strong positive return and outperformed its reference index

BlackRock Greater Europe Investment Trust plc (LON:BRGE) has announced its Annual Report and Financial Statements as at 31 August 2023.

PERFORMANCE RECORD

 

As at 
31 August 
2023 
As at 
31 August 
2022 
Net assets (£’000)1 565,710  483,799 
Net asset value per ordinary share (pence) 560.11  475.72 
Ordinary share price (mid-market) (pence) 527.00  456.00 
Discount to cum income net asset value2 5.9%  4.1% 
FTSE World Europe ex UK Index 1916.71  1654.61 
  ========  ======== 

 

For the year 
ended 
31 August 
2023 
For the year 
ended 
31 August 
2022 
Performance (with dividends reinvested)    
Net asset value per share2 19.2%  -29.2% 
Ordinary share price2 17.1%  -33.4% 
FTSE World Europe ex UK Index 15.8%  -11.5% 
  ========  ======== 

 

For the year 
ended 
31 August 
2023 
For the year 
ended 
31 August 
2022 

Change 

Revenue      
Net profit on ordinary activities after taxation (£’000) 6,920  7,728  -10.5
Revenue earnings per ordinary share (pence)3 6.85  7.65  -10.5
  ————–  ————–  ————– 
Dividends (pence)      
Interim dividend 1.75  1.75  – 
Final dividend 5.00  4.85  +3.1 
  ————–  ————–  ————– 
Total dividends payable/paid 6.75  6.60  +2.3 
========  ========  ======== 

1 The change in net assets reflects payments for shares repurchased into treasury, portfolio movements and dividends paid.

2 Alternative Performance Measures, see Glossary in the Annual Report and Financial Statements.

3 Further details are given in the Glossary in the Annual Report and Financial Statements.

CHAIRMAN’S STATEMENT

Introduction
2023 has turned out to be a better year for both markets and economies than envisaged, whereas 2022 was a challenging year for investors as stocks and bonds fell together. Having lost its biggest supplier of energy following Russia’s invasion of Ukraine, feared economic disruption caused by energy shortages never materialised due to warmer temperatures and effective stock piling of natural gas. However, energy prices were significantly higher and substantial financial support has been given to Ukraine from across the region. A swift intervention by central banks following three large bank failures in the US and the rescue of Credit Suisse in Europe also helped stabilise markets. Although the region has faced economic headwinds and there has been a steady deterioration in the manufacturing sector, respite has been provided by the larger services sector and consumer spending post the COVID-19 pandemic.

Performance
Against this background, I am pleased to report that the portfolio performed well during the year, delivering a strong positive return and outperforming its reference index, the FTSE World Europe ex UK Index. The Company’s net asset value per share (NAV) returned +19.2% and the share price +17.1%. In comparison, the reference index returned +15.8% over the same period (all percentages calculated in Pound Sterling terms with dividends reinvested). As at 31 August 2023, our Company’s NAV total return has outperformed every other investment trust in the AIC Europe sector over one and five year periods.

More details on this and the significant contributors to and detractors from performance during the year are given in the Investment Manager’s Report below. Since the financial year end equity markets have faced a challenging environment and up to close of business on 3 November 2023, the Company’s NAV has decreased by 4.8% compared with a fall in the reference index of 2.0% over the same period.

Revenue earnings and dividends
Your Company’s total revenues each year are a reflection of the dividends we receive from portfolio companies. The revenue return per share for the year ended 31 August 2023 declined to 6.85p per share, which compares with 7.65p per share for the previous year, a fall of 10.5%.

In April, the Board declared an interim dividend of 1.75p per share (2022: 1.75p) and is now proposing the payment of a final dividend of 5.00p per share for the year (2022: 4.85p). This, together with the interim dividend, makes a total dividend for the year of 6.75p per share (2022: 6.60p), an increase of 2.3%. The dividend will be funded from revenue received in the year. Subject to shareholder approval, the dividend will be paid on 20 December 2023 to shareholders on the Company’s register on 17 November 2023, the ex-dividend date being 16 November 2023.

Management of share rating
The Directors recognise the importance to investors that the market price of the Company’s shares should not trade at a significant premium or discount to the underlying NAV. Accordingly, in normal market conditions, the Board may use the Company’s share buy back and share issue powers, or operate six monthly tender offers, to ensure that the share price does not go to an excessive discount or premium to the underlying NAV. Resolutions to renew the Company’s semi-annual tender offers and the authorities to issue and buy back shares will be put to shareholders at the forthcoming Annual General Meeting. It is worth noting that the Company became a constituent of the FTSE 250 on 25 May 2023.

Over the year to 31 August 2023, the Company’s shares have traded at an average discount of 5.4%. During the year, the Company purchased 698,692 ordinary shares at an average price of 431.38p per share and an average discount of 6.2% for a total cost of £3,014,000. Since the year end up to 3 November 2023, a further 188,000 ordinary shares have been bought back at an average price of 528.72p per share for a total cost of £994,000. All shares have been placed in treasury. No shares were issued during the year.

As reported in the 2023 Half Yearly Financial Report, the Directors exercised their discretion not to operate the half yearly tender offers in November 2022 and May 2023. It was also announced on 20 September 2023 that the Board had decided not to implement a semi-annual tender offer in November 2023. Over the six-months to 31 August 2023, the average discount to NAV (cum income) was 5.4% and the discount as at close of business on 19 September 2023 was 4.4%. Against a background of volatile market conditions and the Company trading at the narrowest discount within its peer group at that date, the Board concluded that it was not in the interests of shareholders as a whole to implement a semi-annual tender offer in November 2023.

Portfolio Manager
As announced on 28 September 2023, we are delighted that Alexandra Dangoor has been named as co-portfolio manager of the Company, alongside lead manager Stefan Gries. Alexandra joined the BlackRock Fundamental European Equity Team in 2019 after two years in BlackRock’s graduate rotation program where she was an analyst in the Natural Resources and European Equity teams. Her research support for Stefan’s strategies, including those of the Company, has given her a chance to develop a deep understanding of the philosophy of running concentrated, high conviction, low turnover portfolios.

The co-portfolio manager appointment reflects Alexandra’s strong track record as a research analyst, as well as the European Equity team’s ongoing commitment to the development of talent from within. The appointment also returns the Company to a co-portfolio manager structure. The investment objective and policy of the Company is unchanged.

Board composition
Davina Curling has informed the Board of her intention to retire as a Director of the Company following the Annual General Meeting in December 2023 and, accordingly, will not be seeking re-election. Davina joined the Board in December 2011 and the Board would like to express its strong appreciation for Davina’s wise counsel and invaluable contribution to the Company. Her departure marks the beginning of a Board refreshment policy.

During the year, the Board commenced a search to identify a new Director and we are delighted to announce that Sapna Shah will be appointed following the forthcoming Annual General Meeting. Sapna has 20 years of investment banking experience advising UK companies, including listed REITs and investment companies, on IPOs, equity capital market transactions and mergers and acquisitions. Sapna was appointed as a non-executive director of The Association of Investment Companies (AIC) in January 2021 and is a member of the AIC remuneration committee. She is also a senior adviser at Panmure Gordon Limited and prior to this held senior investment banking roles at UBS AG, Oriel Securities (now Stifel Nicolaus Europe) and Cenkos Securities. Sapna is currently a non-executive director of Supermarket Income REIT plc and BioPharma Credit PLC.

Following Davina’s departure the Board has agreed to appoint Paola Subacchi as the Senior Independent Director.

Visit to Denmark
The Board takes its governance duties very seriously and in May 2023 joined representatives of the Manager on a three-day trip to Denmark to meet the management teams of some of the Company’s largest holdings. This represented a significant time commitment from the Board and the aim of the trip was to gain a deeper understanding of the portfolio manager’s due diligence processes when meeting with investee companies, as well as gaining enhanced knowledge of these companies and their business models and the operational challenges that they are facing in current markets. During the course of the visit the Board undertook site tours and met with representatives from Novo Nordisk, Royal Unibrew and DSV (collectively representing 16.3% of the Company’s portfolio as at 31 August 2023) as well as the Chief Equity Strategist at Danske Bank who provided insight into challenges facing global markets and the Danish economy.

Shareholder communications
The Board appreciates how important access to regular information is to our shareholders. To supplement our website, we offer shareholders the ability to sign up to the Trust Matters newsletter which includes information on the Company, as well as news, views and insights. Further information on how to sign up is included on the inside cover of this report.

Outlook
European equities have defied expectations and produced strong performance over the past 12 months. The rebound has been driven by a combination of rising valuations and improved earnings expectations, as the mild winter averted an energy crisis in Europe. However, it remains a challenging environment especially with the war in Ukraine, the conflict in the Middle East and with above-target inflation forcing the European Central Bank to initiate multiple interest-rate hikes and the impact now being felt in the real economy. Levels of uncertainty therefore remain high and market volatility is expected to remain a key theme for the foreseeable future.

Against this background, our portfolio managers will continue to favour companies that have resilience, robust balance sheets, strong cash flows and management teams with deep experience through multiple cycles. Your Board remains fully supportive of their approach, as markets tend to reward companies with stronger quality credentials amid heightened uncertainty.

Annual General Meeting
The Annual General Meeting of the Company will be held in person at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 12 December 2023 at 12 noon. Details of the business of the meeting are set out in the Notice of Annual General Meeting in the Annual Report and Financial Statements.

Eric Sanderson
Chairman
7 November 2023

INVESTMENT MANAGER’S REPORT

Market review
European equity markets rallied over the past year despite ongoing expectations of an economic downturn. Certain economic indicators, such as Purchasing Manager Indices (PMIs) have looked weak, but company earnings and guidance have exceeded expectations across a wide range of industries. We believe this divergence between the top-down and the bottom-up is best explained by the aftermath of COVID-19 disruptions. Pent up demand for services and travel, improving supply chains and efforts to reduce inventories to more normal levels, have led to temporary demand weakness, de-stocking and subsequent recoveries across different parts of the market and at different times.

Most of the period saw cyclical sectors outperform defensives, perhaps reflecting that expectations had become too pessimistic as the result of an aggressive rate hiking cycle, as well as the previously anticipated weaker economic growth due to higher energy costs after the Russian invasion of Ukraine.

In this report, we will discuss the portfolio’s performance over the last 12 months, offer examples of high conviction ideas held in the portfolio, briefly touch on limited portfolio changes and conclude with our expectations for what the future holds. For the year ended 31 August 2023, performance was positive with a share price total return of 17.1% and a NAV return of 19.2%. By way of comparison, the reference index, the FTSE World Europe ex UK Index, returned 15.8% over the same period. All percentages calculated in Pound Sterling terms with dividends reinvested.

Portfolio performance
Following the headwinds of 2022 (see the 2022 Annual Report and Financial Statements) it is pleasing to note the strong positive contribution to relative returns arising from investments in the semiconductor industry, where we had maintained our positions. Our investment in BE Semiconductor (BESI) was the top performer over the past year. The company designs and produces mission critical semiconductor assembly equipment used by chip manufacturers, assembly subcontractors and electronics and industrial companies. Specifically, they are a leading provider of packaging solutions such as hybrid bonding, which is set to become an increasingly important technology in enabling semiconductor chips to continue getting smaller, yet more powerful and energy efficient.

BESI’s strong share price performance of almost 130% over the last 12 months, was driven by a better-than-expected earnings (Q2 2023 results showed revenues up by 21.8% compared to the previous quarter, although down 24% year-on-year but more importantly gross margins exceeded 65%) and a positive re-assessment of the future prospects of the company following an update from Nvidia. The US based chip designer said they were seeing ‘surging demand’ for data centre products used in generative Artificial Intelligence (AI), such as ChatGPT. To meet the demands of emerging AI technologies, semiconductor chips will have to become more powerful, meaning chip manufacturers will need to markedly increase their use of advanced packaging tools such as those sold by BESI.

A number of other semiconductor companies held in the portfolio also added to returns. ASM International, a company specialising in “atomic layer deposition” (depositing a fine layer of chemicals on a microchip resulting in uniform surfaces and better control of voltage along with current flow/leakage) delivered results in-line with expectations but talked about new orders to improve during the second half of 2023 helped by new technologies. Similarly, ASML, a manufacturer of lithography machines (etching intricate patterns on silicon wafer) reported that overall demand continued to outstrip supply, with an order backlog of approximately EUR 38 billion.

A very different but equally exciting company was another significant driver of returns. Novo Nordisk is a Danish-listed diabetes specialist and producer of the semaglutide molecule which has already experienced significant commercial success in diabetes under brand names Ozempic (injection) and Rybelsus (oral tablet). However, it was its use in an obesity care setting which is rapidly developing under brand name Wegovy (injection) that moved the share price higher by over 60% during the past year.

We believe the obesity market opportunity is significant. Whilst there are an estimated 764 million people living globally with obesity, only a small percentage of these seek help from a healthcare professional. Even fewer are treated with medications and the side effect profiles of older therapies mean only a quarter stay on treatment for more than a year. With its strong efficacy profile in weight loss, a well-established side effect profile and database from its use in diabetes already, Wegovy has an opportunity to disrupt this market and help people continue with their treatment.

The investment case became even more compelling towards the end of the period as Novo Nordisk reported results from its ‘SELECT’ cardiovascular outcomes clinical trial which showed a statistically significant 20% reduction in major adverse cardiovascular events for patients on Wegovy, a very positive outcome and above investor expectations. We believe these results will help underpin the validity of this new category of obesity drugs, leading to further uptake from commercial insurers, physicians, government programmes and patients.

Novo Nordisk sales franchise split 2012:

  % of portfolio
Insulin franchise 66
GLP-1 franchise 12
Rare Disease franchise 22

Novo Nordisk sales franchise split 2022:

  % of portfolio
Insulin franchise 32
GLP-1 franchise 47
Obesity franchise 9
Rare Disease franchise 12

Source: BlackRock.

Negative contribution came mainly from two areas: a potential competitive threat to payments provider Adyen and unexpected order weakness in the life sciences and biopharma industries. Firstly, Adyen is a low-cost payments provider with a best-in-class single-stack technology platform, which had driven profitable growth through market share gains in the past. However, in the summer of 2023, Adyen surprised markets with an earnings miss that led to a fall in the share price by more than 40%. Management reported slowing growth driven by increased pricing competition in North America. We had spoken to the company throughout the year and tracked industry results where possible.

The change in competition comes from Braintree, a unit within PayPal, which we believe may try to undercut Adyen despite a higher cost stack and therefore accepting a near zero-profit as a result. The initial share price reaction was extreme, even accounting for a derating reflecting lower confidence in future forecasts: North America represents 25% of Adyen’s business and the ‘Digital’ business (i.e. online purchases only) which is impacted by the new competition represents circa 15%. Whilst revenue of the impacted business is unlikely to decline to zero, a lower take rate would result in slower top line growth and lower profitability. To what degree that will be the case is under review at the time of writing. We have reduced our position reflecting lower conviction. Secondly, several of the portfolio’s life science holdings detracted from performance. The industry faced headwinds from rising interest rates as funding costs increased which in turn led to a decline in the funding required for their customers’ (typically large pharma companies) drug development programmes.

The key casualty in the portfolio was ChemoMetec, a company that specialises in the sale of analytical equipment (primarily cell counters). While funding pressures have recently led to weaker orders from customers, we expect these trends to stabilise in the coming quarters and continue to see the business as an excellent way of accessing the rapidly growing market for cell-based therapies without taking product specific risk. Sartorius, a supplier of single use equipment used to manufacture drugs, was particularly impacted by this phenomenon but we do not believe there has been any change in the underlying structural drivers and we expect to see a return to historical growth rates through 2024. Finally, Lonza Group, the specialist in contract drug manufacturing, faced weakness in its nutraceutical business (vitamins and capsules), but its core business (large scale commercial biologics) continued to see very strong demand and performed well and we see no evidence of weakening long-term fundamentals.

High conviction areas
Amid the increasing volume of soundbites about regime change regarding the interest rate environment, we remain focused on investing in companies whose profits are aligned to long-term spending trends that will persist irrespective of the level of interest rates, inflation and near-term economic growth. One such spending trend, supported by supernational programmes, is the effort to re-organise and improve the resilience of supply chains, bring manufacturing closer to domestic markets and increase automation in the face of higher labour costs or deteriorating demographics. An example of a company that we believe will benefit from this “capex renaissance” is Swedish-listed Atlas Copco (Atlas), a world leading manufacturer of compressors, vacuum solutions, generators, pumps, power tools and assembly systems.

Atlas is an exceptionally well managed business with a long-term culture and strong customer focus, aided by a decentralised structure with devolved decision making. They pride themselves on integrating with their customers and thus being able to provide rapid and extensive services and support of their installed base of equipment. The largest part of Atlas’ revenue is derived from producing, selling, and servicing compressed air solutions such as industrial compressors and air management systems which have a wide range of applications across the industrial complex. Increasing factory automation is a structural tailwind, as is producing the most energy efficient compressors, and we believe Atlas is well positioned to benefit from customers’ desire to reduce their total cost of ownership.

Atlas’ vacuum business is a global leading supplier of vacuum solutions – primarily to the semiconductor and electronics manufacturing markets. We believe it is well set to benefit from the expansion of the North American semiconductor manufacturing market, which has become a national priority. Currently only 10% of the world’s chips are made in the US. However, as the chart in the Annual Report and Financial Statements shows, we are seeing major investment in semiconductor manufacturing facilities. Atlas is following suit with new facilities in Arizona and Massachusetts to support the burgeoning industry.

Another long duration spending stream – the “renovation wave” – results from global efforts to decarbonise. For instance, to meet the European Union’s (EU) 2050 net-zero target, the European housing stock needs to be improved as it is estimated that 75% of the EU building stock is energy inefficient and buildings account for circa 40% of energy consumption and 36% of greenhouse gas emissions in the EU. It is estimated that the region’s total energy consumption and carbon dioxide emission could be reduced by 5% to 6% by renovating the existing building stock. Landlords and tenants alike are being pushed to act by regulation and landlords have the additional incentive of moving quickly to avoid their properties becoming stranded assets. As a result, companies such as Sika, a leader in providing specialty chemicals to the construction industry, should see its earnings underpinned for more than a decade. Sika’s products are used in flooring, roofing, sealing, bonding and waterproofing – key applications needed for building and renovation work. With sales to both renovation projects, as well as new builds, the company offers exposures to multiple points of the construction cycle.

Kingspan is another beneficiary; the building materials company makes insulated panels and boards often used in buildingssuch as warehouses, data centres and battery factories where we expect strong demand in the near-term future.

An area where we have historically seldom deployed much capital, but where market dynamics are changing, is the banking sector. Higher interest rates, lower leverage and a remarkable benign default environment have combined to create a profitable backdrop for the sector. That said, in the large economies in Europe, there is little evidence that many banks will meet our long-term investment criteria due to our scepticism on their ability to earn a spread between their returns and their cost of capital on a prolonged basis. An exception to this is Allied Irish Banks (AIB) which we added to the portfolio at the beginning of 2023. AIB not only benefits from a higher interest rate regime but also from an improved structural backdrop in Ireland. The economy has materially de-levered post the Global Financial Crisis (GFC) meaning that credit quality is significantly better than during the previous cycle and loan to deposit ratios of the banks are circa 65% to 70%, some of the lowest in Europe. The Irish banking market has also become highly consolidated, allowing AIB to have a 31% market share in mortgages and 37% share in deposits. As the rate cycle progresses, we believe that AIB has the tools to reduce its sensitivity to rates if needed, which makes it one of a few banks to hold on a long-term view.

Structural change is favourable for market leaders

Figure 1: Ireland mortgage market share, 2020

  % of portfolio
AIB 26
BIRG 20
PTSB 12
Ulster 13
KBC 9
Other 20

Figure 2: Ireland mortgage market share, 2022 post M&A

  % of portfolio
AIB 31
BIRG 27
PTSB 18
Other 24

Figure 3: Ireland deposit market share, 2020

  % of portfolio
AIB 36
BIRG 34
PTSB 9
Ulster 11
KBC 3
Other 7

Figure 4: Ireland deposit market share, 2022 post M&A

  % of portfolio
AIB 41
BIRG 38
PTSB 9
Ulster 3
Other 9

AIB:  Allied Irish Banks plc
PTSB:  Permanent TSB Group Holdings plc
KBC:  KBC Bank Ireland plc
BIRG:  Bank of Ireland Group plc

Source: Central Bank of Ireland.

Portfolio changes
As long term and concentrated investors, ‘competition for capital’ is high and therefore we typically do not change our positioning unless we see a fundamental change to an investment case or there is an opportunity that is significantly better than an asset we already own. Portfolio turnover over the last year was 16%, implying a more-than-six year holding period. As described above, we added a position in AIB to the portfolio at the beginning of the year. We exited from National Bank of Greece, Bank Pekao and Avanza Bank, hence the overall weight to financials was reduced.

Our technology exposure increased over the period as we added a position in STMicroelectronics (STM) which creates semiconductor technologies. STM has been outgrowing its end markets given a number of new innovative product launches around auto, smartphones and industrial projects. We expect this trend to continue helped by continued innovation in power chips for electric vehicles, sensors for consumer electronics and connectivity for industrial applications. All these areas should see secular growth ahead, as devices need to become smarter as well as more energy efficient. Following the sell-off in technology assets in 2022, the shares’ valuation offered an attractive entry point to make an investment.

Elsewhere in the sector, we bought engineering and technology consulting company ALTEN Group, which serves customers across a range of industries both in the private and public sector. ALTEN Group is a beneficiary of increasing digitisation trends, as companies everywhere seek to become more agile and efficient with higher technology budgets. It joins a sizeable cohort of companies in the portfolio which are founder-led: a trait which often results in management teams focused on delivering long-term sustainable and profitable growth.

Finally, we exited Diasorin and Polypeptide. Diasorin is an Italian-listed diagnostics company that develops, produces and sells reagent kits and instruments for diagnosis and research. We decided to sell the position after losing conviction in the firm’s management team upon poor execution on their Luminex deal. Similarly, Polypeptide suffered a number of technical and manufacturing process issues which led to a temporary suspension of two manufacturing lines. Following those events, we reduced our weightings and ultimately sold the positions.

Holdings in Russian stocks
Prior to Russia’s invasion of Ukraine, 5.7% (£36.9 million) of the Company’s portfolio was invested in stocks with exposure to Russia (as at 31 January 2022). During the year under review, the Company was able to partially realise its holding in Fix Price Group for proceeds of £0.3 million compared to a carrying value of £0.9 million as at 31 January 2022, resulting in an uplift of 0.1% to the Company’s NAV per share on 5 October 2023 as this position was previously fair valued at zero. In addition, and subsequent to the year end, the Company was also able to realise in full its holding in Ozon Holdings for £3.2 million (compared to a carrying value of £4.3 million as at 31 January 2022), resulting in an uplift of 0.61% to the Company’s NAV per share on 5 October 2023 as this position was previously fair valued at zero. The Company’s holdings in both Fix Price Group and Ozon were in the form of Depositary Receipts (rather than direct equity exposure) and there were no sanctions restrictions in respect of the disposal of these holdings.

Outlook
The noise around market moves seems to increase with every passing year. More recently, the war in the Middle East has further complicated matters and has, for now, put a risk premium on equities. As with all geographical risks, we monitor the situation very carefully.

We make no attempt to predict to the basis point the next quarters’ gross domestic product (GDP), growth inflation or unemployment rate. Nor do we pay much heed to top-down indicators or what they may reveal about the health of the global economy. As described earlier in this report, the world is clearly in the midst of several transitions: COVID-19 to post COVID-19, inflation to disinflation, low interest rates to high interest rates. These dynamics must be considered when assessing the health of the global economy and the prospects for equity markets. Various end markets may continue to imply weak demand as inventories are run down, while others – perhaps those associated with Chinese real estate – may have more prolonged problems.

However, assessing the economy from the bottom-up, company by company, we see no reason for investors with a reasonable time horizon to be alarmed. Household debt relative to assets is low in large economies, interest rate sensitivity is lower than in previous cycles and real wages are growing. Similarly, corporate balance sheets are strong after 15 years of deleveraging, margins remain at healthy levels and we may be at the foothills of an increase in capital expenditure spending resulting in a ‘modern era industrial revolution’. Long-term structural trends and large amounts of stimulus in both Europe and the US can drive demand for years to come, for example in areas such as infrastructure, automation, innovation in medicines, the shift to electric vehicles, digitisation or decarbonisation. We believe the portfolio is well aligned to many of these structural spending streams that should continue to support earnings in the medium to long term.

As investors we must be forward looking, we must anticipate areas of enduring demand and identify those special companies whose characteristics enable them to capitalise on this demand and, in doing so, benefit their stakeholders and shareholders. We remain optimistic about the prospects of companies held in our portfolio.

Stefan Gries and Alexandra Dangoor
BlackRock Investment Management (UK) Limited
7 November 2023

TEN LARGEST INVESTMENTS

Ten largest investments represented 53.4% of the portfolio as at 31 August 2023 (2022: 53.7%)

 Novo Nordisk (2022: 1st)
Health Care company
Market value: £55,500,000
Share of investments: 9.3%

Novo Nordisk is a Danish multinational pharmaceutical company and a leader in diabetes care. Novo Nordisk is expected to post strong earnings and cashflow growth driven by demand for Ozempic which treats Type 2 diabetes and its weight management drug Wegovy. The latter has recently provided evidence of reducing major adverse cardiovascular events by 20%.

 LVMH (2022: 3rd)
Consumer Discretionary company
Market value: £43,689,000
Share of investments: 7.3%

LVMH is a French multinational corporation specialising in luxury goods. The group has a strong and well-diversified portfolio of luxury brands ranging from handbags to spirits to cosmetics. LVMH’s business model enjoys high barriers to entry due to the heritage, provenance and exquisite quality of its product offering. Its consistent brand investment through economic cycles has helped to spur brand desirability and allowed for significant pricing power.

 ASML (2022: 2nd)
Technology company
Market value: £39,724,000
Share of investments: 6.7%

ASML is a Dutch company specialising in photolithography systems for the semiconductor industry. The company is at the forefront of technological change, investing in leading research and development to capture the structural growth opportunity coming from growth in mobile devices and microchip components. High barriers to entry within the industry give ASML a protected position with strong pricing power allowing growth in margins.

 RELX (2022: 4th)
Consumer Discretionary company
Market value: £32,544,000
Share of investments: 5.5%

RELX is a multinational information and analytics company with high barriers to entry in most of its divisions, including scientific publishing. Their capital light business model enables high rate of cash conversion with repeat subscription-based revenues. The business benefits from increasing usage of data globally supporting their data analytics business.

 DSV Panalpina (2022: 6th)
Industrials company
Market value: £26,104,000
Share of investments: 4.4%

DSV Panalpina is a Danish freight forwarding and logistics company run by an excellent management team with a strong track record in creating value through acquisitions and by instilling a best-in-class culture. Their success in making acquisitions has been facilitated by a strong technology platform which drives operational efficiencies leading to high conversion margins.

 Lonza Group (2022: 5th)
Health Care company
Market value: £26,021,000
Share of investments: 4.4%

Lonza Group is a Swiss healthcare services and life-sciences company which has established itself as one of the leading contract-manufacturers of high-end biological drugs, as well as cell and gene therapy. The company’s competitive advantages stem from the complexity of the production process – where few peers can match its offering. This is cemented by high barriers to entry given that all production facilities are required to be certified by the Food and Drug Administration.

 Hermès (2022: 9th)
Consumer Discretionary company
Market value: £25,094,000
Share of investments: 4.2%

Hermès is a French luxury design house specialising in leather goods, lifestyle accessories, home furnishings, perfumery, jewellery, watches and high-end clothing. With good brand management and craftsmanship, Hermès products are supply constrained and the company enjoys strong earnings visibility as some of its most iconic products are sold on allocation via waiting lists. Hermès has been run in a conservative fashion for generations with strategic decisions taken with the longest of timeframes.

 STMicroelectronics (2022: n/a)
Technology company
Market value: £24,426,000
Share of investments: 4.1%

STMicroelectronics is a Dutch technology company creating semiconductor technologies. The company has been outgrowing its end markets due to a number of new innovative product launches in automobile, smartphone and industrial segments. The portfolio managers expect this trend to continue, helped by continued innovation in power chips for electric vehicle cars, sensors for consumer electronics and microcontrollers for industrial applications.

 BE Semiconductor (2022: 18th)
Technology company
Market value: £23,811,000
Share of investments: 4.0%

BE Semiconductor is a Dutch supplier of semiconductor assembly equipment. The company can continue to grow its market share of an overall growing market given its best-in-class position to capture the advanced packaging segment of the assembly market. The chip makers will have to rely on more innovative packaging solutions (e.g. hybrid bonding) to continue to improve chip efficiency (faster processing, lower power consumption) while also keeping control over manufacturing costs.

10  Safran (2022: 12th)
Industrials company
Market value: £20,699,000
Share of investments: 3.5%

Safran is a French multinational supplier of aerospace, defence and security systems. The industry has emerged from a heavy investment period and Safran is well placed to benefit from continued strength in its best in class after-market business and strong execution in its LEAP engine program which should drive growth for the next decade.

All percentages reflect the value of the holding as a percentage of total investments.

INVESTMENTS AS AT 31 AUGUST 2023

 

Country of 
operation 
Market 
value 
£’000 
% of 
investments 
Technology      
ASML Netherlands  39,724  6.7 
STMicroelectronics Switzerland  24,426  4.1 
BE Semiconductor Netherlands  23,811  4.0 
ASM International Netherlands  19,711  3.3 
Amadeus IT Group Spain  14,032  2.4 
ALTEN Group France  9,337  1.6 
Hexagon Sweden  8,417  1.4 
    ————–  ————– 
    139,458 23.5
    =========  ========= 
Industrials      
DSV Panalpina Denmark  26,104  4.4 
Safran France  20,699  3.5 
Sika Switzerland  19,917  3.3 
Kingspan Ireland  15,962  2.7 
Atlas Copco Sweden  10,800  1.8 
Epiroc Sweden  8,269  1.4 
Belimo Switzerland  8,142  1.4 
Rational Germany  7,455  1.3 
ALD France  7,334  1.2 
VAT Group Switzerland  5,811  1.0 
Adyen Netherlands  4,282  0.7 
    ————–  ————– 
    134,775 22.7
    =========  ========= 
Consumer Discretionary      
LVMH France  43,689  7.3 
RELX United Kingdom  32,544  5.5 
Hermès France  25,094  4.2 
Ferrari Italy  20,469  3.5 
Fix Price Group+ Russia  939  0.2 
Ozon Holdings* Russia  – 
    ————–  ————– 
    122,737 20.7
    =========  ========= 
Health Care      
Novo Nordisk Denmark  55,500  9.3 
Lonza Group Switzerland  26,021  4.4 
Straumann Switzerland  10,406  1.7 
ChemoMetec Denmark  9,233  1.6 
Sartorius France  6,024  1.0 
    ————–  ————– 
    107,184 18.0
    =========  ========= 
Financials      
Allied Irish Banks (AIB) Ireland  16,242  2.7 
Partners Group Switzerland  13,031  2.2 
KBC Groep Belgium  11,541  1.9 
FinecoBank Italy  4,187  0.7 
Allfunds Group United Kingdom  3,763  0.6 
Sberbank* Russia  – 
    ————–  ————– 
    48,765 8.1
    =========  ========= 
Consumer Staples      
Royal Unibrew Denmark  15,440  2.6 
Lindt Switzerland  10,625  1.8 
    ————–  ————– 
    26,065 4.4
    =========  ========= 
Basic Materials      
IMCD Netherlands  15,743  2.6 
    ————–  ————– 
    15,743 2.6
    =========  ========= 
Energy      
Lukoil* Russia  –  – 
    ————–  ————– 
    –  – 
    =========  ========= 
Total investments   594,727 100.0
  =========  ========= 

+ Investment held at Directors’ valuation.

* The investments in Ozon Holdings, Sberbank and Lukoil have been marked down to a nominal value of £0.01 as the secondary listings of depositary receipts of Russian companies have been suspended from trading.

All investments are in ordinary shares unless otherwise stated. The total number of investments held at 31 August 2023 was 39 (31 August 2022: 39).

Industry classifications in the table above are based on the Industrial Classification Benchmark standard for categorisation of companies by industry and sector.

As at 31 August 2023, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.

INVESTMENT EXPOSURE AS AT 31 AUGUST 2023

Market capitalisation

  % of portfolio
<€1bn 1.6
€1bn to €10bn 19.9
€10bn to €20bn 10.5
€20bn to €50bn 37.0
>€50bn 31.0

Investment size

  Number of investments % of portfolio
<£1m 4 0.2
£3m to £5m 3 2.0
£5m to £10m 9 11.9
>£10m 23 85.9

Distribution of investments

  %
Technology 23.5
Industrials 22.7
Consumer Discretionary 20.7
Health Care 18.0
Financials 8.1
Consumer Staples 4.4
Basic Materials 2.6

Source: BlackRock.

To discover more about the BlackRock Greater Europe Investment Trust click here

STRATEGIC REPORT

The Directors present the Strategic Report of the Company for the year ended 31 August 2023. The aim of the Strategic Report is to provide shareholders with the information to assess how the Directors have performed their duty to promote the success of the Company for the collective benefit of shareholders.

The Chairman’s Statement together with the Investment Manager’s Report form part of this Strategic Report. The Strategic Report was approved by the Board at its meeting on 7 November 2023.

Principal activity
The Company carries on business as an investment trust and has a premium listing on the London Stock Exchange. Its principal activity is portfolio investment. Investment trusts are pooled investment vehicles which allow exposure to a diversified range of assets through a single investment, thus spreading investment risk.

Investment objective
The Company’s objective is the achievement of capital growth, primarily through investment in a focused portfolio constructed from a combination of the securities of large, mid and small capitalisation European companies, together with some investment in the developing markets of Europe. The Company also has the flexibility to invest in any country included in the FTSE World Europe ex UK Index, as well as the freedom to invest in developing countries not included in the index but considered by the Manager and the Directors as part of greater Europe.

Strategy, business model and investment policy
Strategy
The Company invests in accordance with the objective given above. The Board is collectively responsible to shareholders for the long-term success of the Company and is its governing body. There is a clear division of responsibility between the Board and BlackRock Fund Managers Limited (the Manager). Matters reserved for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing, capital structure, governance, and appointing and monitoring of performance of service providers, including the Manager.

Business model
The Company’s business model follows that of an externally managed investment trust. Therefore, the Company does not have any employees and outsources its activities to third party service providers including the Manager, who is the principal service provider. In accordance with the Alternative Investment Fund Managers’ Directive (AIFMD), as implemented, retained and onshored in the UK, the Company is an Alternative Investment Fund (AIF). BlackRock Fund Managers Limited is the Company’s Alternative Investment Fund Manager.

The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager who in turn (with the permission of the Company) has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited (BIM (UK) or the Investment Manager). The Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.

The Company delegates fund accounting services to the Manager, which in turn sub-delegates these services to The Bank of New York Mellon (International) Limited (BNYM). Other service providers include the Depositary (also BNYM) and the Registrar, Computershare Investor Services PLC. Details of the contractual terms with the Manager and the Depositary and more details of arrangements in place governing custody services are set out in the Directors’ Report in the Annual Report and Financial Statements.

Investment policy
The Company’s policy is that the portfolio should consist of approximately 30-70 securities and the majority of the portfolio will be invested in larger capitalisation companies, being companies with a market capitalisation of over €5 billion. Up to 25% of the portfolio may be invested in companies in developing Europe. The Company may also invest up to 5% of the portfolio in unquoted investments. However, overall exposure to developing European companies and unquoted investments will not in aggregate exceed 25% of the Company’s portfolio.

As at 31 August 2023, the Company held 39 investments. None (2022: 3.4%) of the portfolio was invested in developing Europe. The Company had no unquoted investments.

Investment in developing European securities may be either direct or through other funds, including those managed by BlackRock Fund Managers Limited, subject to a maximum of 15% of the portfolio. Direct investment in Russia is limited to 10% of the Company’s assets. Investments may also include depositary receipts or similar instruments representing underlying securities.

The Company also has the flexibility to invest up to 20% of the portfolio in debt securities, such as convertible bonds and corporate bonds. No bonds were held at 31 August 2023. The use of any derivative instruments such as financial futures, options and warrants and the entering into of stock lending arrangements will only be for the purposes of efficient portfolio management.

While the Company may hold shares in other investment companies (including investment trusts), the Board has agreed that the Company will not invest more than 15%, in aggregate, of its total assets in other listed closed-ended investment funds.

In order to comply with the current Listing Rules, the Company will also not invest more than 10% of its gross asset value in other listed closed-ended investment funds which themselves may invest more than 15% of their gross assets in other listed closed-ended investment funds. This restriction does not form part of the Company’s investment policy.

The Company achieves an appropriate spread of risk by investing in a diversified portfolio of securities.

The Investment Manager believes that appropriate use of gearing can add value over time. This gearing typically is in the form of an overdraft facility which can be repaid at any time. The level and benefit of any gearing is discussed and agreed regularly by the Board. The Investment Manager generally aims to be fully invested and it is anticipated that gearing will not exceed 15% of net asset value (NAV) at the time of drawdown of the relevant borrowings. At the balance sheet date, the Company had net gearing of 5.1% (2022: nil).

Performance
In the year to 31 August 2023, the Company’s NAV per share increased by 19.2% (compared with an increase in the reference index of 15.8%) and the share price rose by 17.1% (all percentages calculated in Pound Sterling terms with dividends reinvested). The Investment Manager’s Report includes a review of the main developments during the year, together with information on investment activity within the Company’s portfolio.

Results and dividends
The results for the Company are set out in the Income Statement in the Financial Statements. The total profit for the year, after taxation, was £91,591,000 (2022: total loss, after taxation, of £201,365,000) which is reflected in the increase in the net asset value of the Company. The revenue return amounted to £6,920,000 (2022: £7,728,000) and relates to net revenue earnings from dividends received during the year after adjusting for expenses allocated to revenue.

As explained in the Company’s Half Yearly Financial Report, the Directors declared an interim dividend of 1.75p per share (2022: 1.75p). The Directors recommend the payment of a final dividend of 5.00p per share, making a total dividend of 6.75p per share (2022: 6.60p). Subject to approval at the forthcoming Annual General Meeting, the dividend will be paid on 20 December 2023 to shareholders on the register of members at the close of business on 17 November 2023.

Future prospects
The Board’s main focus is to achieve capital growth. The future performance of the Company is dependent upon the success of the investment strategy and, to a large extent, on the performance of financial markets. The outlook for the Company is discussed in both the Chairman’s Statement and Investment Manager’s Report above.

Social, community and human rights issues
As an investment trust, the Company has no direct social or community responsibilities or impact on the environment and the Company has not adopted an ESG investment strategy or exclusionary screens. However, the Directors believe that it is important and in shareholders’ interests to consider human rights issues and environmental, social and governance factors when selecting and retaining investments. Details of the Company’s approach to ESG integration and socially responsible investment is set out below.

Modern Slavery Act
As an investment vehicle the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. In any event, the Board considers the Company’s supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.

Directors, gender representation and employees
The Directors of the Company on 31 August 2023 are set out in the Directors’ Biographies in the Annual Report and Financial Statements. The Board consists of three male Directors and two female Directors. The Company’s policy on diversity is set out in the Annual Report and Financial Statements. The Company does not have any executive employees.

Key performance indicators
At each Board meeting, the Directors consider a number of performance measures to assess the Company’s success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time, and which are comparable to other investment trusts, are set out below. As indicated in footnote 2 to the table below, some of these KPIs fall within the definition of ‘Alternative Performance Measures’ (APMs) under guidance issued by the European Securities and Markets Authority (ESMA) and additional information explaining how these are calculated is set out in the Glossary in the Annual Report and Financial Statements.

Additionally, the Board regularly reviews the performance of the portfolio, as well as the net asset value and share price of the Company and compares this against various companies and indices. The Company does not have a benchmark. However, the Board reviews performance and ongoing charges against a peer group of European investment trusts and open-ended funds, as well as the FTSE World Europe ex UK Index.

 

As at 
31 August 
2023 
As at 
31 August 
2022 
Net asset value per share 560.11p  475.72p 
Net asset value total return1,2 19.2%  -29.2% 
Share price 527.00p  456.00p 
Share price total return1,2 17.1%  -33.4% 
Discount to net asset value2 5.9%  4.1% 
Revenue return per share 6.85p  7.65p 
Ongoing charges2,3 0.98%  0.98% 
  =========  ========= 

1 This measures the Company’s share price and NAV total return, which assumes dividends paid by the Company have been reinvested.

2 Alternative Performance Measures, see Glossary in the Annual Report and Financial Statements.

3 Ongoing charges represent the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items, as a % of average daily net assets.

Principal risks
The Company is exposed to a variety of risks and uncertainties. As required by the 2018 UK Corporate Governance Code (the UK Code), the Board has in place a robust ongoing process to identify, assess and monitor the principal risks and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. A core element of this process is the Company’s risk register which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the quality of controls operating to mitigate it. A residual risk rating is then calculated for each risk based on the outcome of the assessment.

The risk register, its method of preparation and the operation of key controls in BlackRock’s and third-party service providers’ systems of internal control, are reviewed on a regular basis by the Audit and Management Engagement Committee. In order to gain a more comprehensive understanding of BlackRock’s and other third-party service providers’ risk management processes and how these apply to the Company’s business, BlackRock’s internal audit department provides an annual presentation to the Audit Committee chairs of the BlackRock investment trusts setting out the results of testing performed in relation to BlackRock’s internal control processes. The Audit and Management Engagement Committee also periodically receives and reviews internal control reports from BlackRock and the Company’s service providers.

The Board has undertaken a robust assessment of both the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. For instance, the risk that unforeseen or unprecedented events including (but not limited to) heightened geo-political tensions such as the war in Ukraine, high inflation and the current cost of living crisis has had a significant impact on global markets. The Board has taken into consideration the risks posed to the Company by these events and incorporated them into the Company’s risk register. The threat of climate change has also reinforced the importance of more sustainable practices and environmental responsibility.

Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register. Additionally, the Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will be communicated to the Board.

The Board will continue to assess these risks on an ongoing basis. In relation to the UK Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period.

The principal risks and uncertainties faced by the Company during the financial year, together with the potential effects, controls and mitigating factors are set out below.

COUNTERPARTY RISK
Principal risk
The potential loss that the Company could incur if a counterparty is unable (or unwilling) to perform on its commitments.

Mitigation/Control
Due diligence is undertaken before contracts are entered into and exposures are diversified across a number of counterparties.

The Depositary is liable for restitution for the loss of financial instruments held in custody unless able to demonstrate the loss was a result of an event beyond its reasonable control.

INVESTMENT PERFORMANCE RISK
Principal risk
Returns achieved are reliant primarily upon the performance of the portfolio.

The Board is responsible for:

– deciding the investment strategy to fulfil the Company’s objective; and

– monitoring the performance of the Investment Manager and the implementation of the investment strategy.

An inappropriate investment strategy may lead to:

– underperformance compared to the reference index and the Company’s peer group;

– a reduction or permanent loss of capital; and

– dissatisfied shareholders and reputational damage.

The Board is also cognisant of the long-term risk to performance from inadequate attention to ESG issues and in particular the impact of climate change.

Mitigation/Control
To manage this risk the Board:

– regularly reviews the Company’s investment mandate and long-term strategy;

– has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on;

– receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing and the rationale for the composition of the investment portfolio;

– monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the investment policy; and

– receives and reviews regular reports showing an analysis of the Company’s performance against the FTSE World Europe ex UK Index and other similar indices.

ESG analysis is integrated into the Manager’s investment process as set out below. This is monitored by the Board.

LEGAL & COMPLIANCE RISK
Principal risk
The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions, and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from corporation tax on capital gains on the profits realised from the sale of its investments.

Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio. In such event, the investment returns of the Company may be adversely affected.

A serious regulatory breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings, or the suspension of the Company’s shares which could in turn lead to a breach of the Corporation Tax Act 2010.

Amongst other relevant laws, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the UK Listing Rules, Disclosure Guidance and Transparency Rules, the Sanctions and Anti-Money Laundering Act 2018 and the Market Abuse Regulation.

Mitigation/Control
The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting.

Compliance with the accounting rules affecting investment trusts are also carefully and regularly monitored.

The Company Secretary, Manager and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulations. The Board and the Manager also monitor changes in government policy and legislation which may have an impact on the Company.

The Company’s Investment Manager, BlackRock, at all times complies with the sanctions administered by the UK Office of Financial Sanctions Implementation, the United States Treasury’s Office of Foreign Assets Control, the United Nations, European Union member states and any other applicable regimes.

MARKET RISK
Principal risk
Market risk arises from volatility in the prices of the Company’s investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements.

Changes in general economic and market conditions, such as currency exchange rates, interest rates, rates of inflation, industry conditions, tax laws and political events can also substantially and adversely affect the securities and, as a consequence, the Company’s prospects and share price.

Market risk includes the potential impact of events which are outside the Company’s control, including (but not limited to) heightened geo-political tensions and military conflict, a global pandemic and high inflation.

Companies operating in the sectors in which the Company invests may be impacted by new legislation governing climate change and environmental issues, which may have a negative impact on their valuation and share price.

Mitigation/Control
The Board considers the diversification of the portfolio, asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager.

The Board monitors the implementation and results of the investment process with the Investment Manager.

The Board also recognises the benefits of a closed-end fund structure in extremely volatile markets such as those experienced as a consequence of the COVID-19 pandemic and Russia/Ukraine conflict. Unlike open-ended counterparts, closed-end funds are not obliged to sell down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed-end fund structure to remain invested for the long term enables the portfolio managers to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves.

The portfolio managers spend a considerable amount of time understanding the environmental, social and governance (ESG) risks and opportunities facing companies and industries in the portfolio. The Company does not exclude investment in stocks based on ESG criteria, but the portfolio managers consider ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio.

OPERATIONAL RISK
Principal risk
In common with most other investment trust companies, the Company has no employees. The Company therefore relies on the services provided by third parties and is dependent on the control systems of the Manager, the Depositary and Fund Accountant which maintain the Company’s assets, dealing procedures and accounting records.

The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of these other third-party service providers. There is a risk that a major disaster, such as floods, fire, a global pandemic, or terrorist activity, renders the Company’s service providers unable to conduct business at normal operating capacity and effectiveness.

Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records (including cyber security risk) could prevent the accurate reporting and monitoring of the Company’s financial position.

Mitigation/Control
Due diligence is undertaken before contracts are entered into with third-party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board.

The Board reviews on a regular basis an assessment of the fraud risks that the Company could potentially be exposed to and also a summary of the controls put in place by the Manager, Depositary, Custodian, Fund Accountant and Registrar specifically to mitigate these risks.

Most third-party service providers produce Service Organisation Control (SOC 1) reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit and Management Engagement Committee for review. The Committee would seek further representations from service providers if not satisfied with the effectiveness of their control environment.

The Company’s financial instruments held in custody are subject to a strict liability regime and, in the event of a loss of such financial instruments held in custody, the Depositary must return financial instruments of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control.

The Board reviews the overall performance of the Manager, Investment Manager and all other third-party service providers on a regular basis and compliance with the Investment Management Agreement annually.

The Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of its review of the Company’s risk register.

FINANCIAL RISK
Principal risk
The Company’s investment activities expose it to a variety of financial risks which include interest rate risk, counterparty credit risk and liquidity risk.

Mitigation/Control
Details of these risks are disclosed in note 16 to the Financial Statements in the Annual Report and Financial Statements, together with a summary of the policies for managing these risks.

MARKETING RISK
Principal risk
Marketing efforts are inadequate or do not comply with relevant regulatory requirements. There is a failure to communicate adequately with shareholders or reach out to potential new shareholders resulting in reduced demand for the Company’s shares and a widening of the discount.

Mitigation/Control
The Board reviews marketing strategy and initiatives and the Manager is required to provide regular updates on progress. BlackRock has a dedicated investment trust sales team visiting both existing and potential clients on a regular basis. Data on client meetings and issues raised are provided to the Board on a regular basis.

All investment trust marketing documents are subject to appropriate review and authorisation.

Viability statement
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve months referred to by the ‘Going Concern’ guidelines. The Company is an investment trust with the objective of achieving capital growth.

The Directors expect the Company to continue for the foreseeable future and have therefore conducted this review for the period up to the Annual General Meeting in 2028. The Directors believe that five years is an appropriate investment horizon to assess the viability of the Company. This is based on the Company’s long-term mandate, the low turnover in the portfolio and the investment holding period investors generally consider while investing in the European sector.

In making an assessment on the viability of the Company, the Board has considered the following:

– the impact of a significant fall in European equity markets on the value of the Company’s investment portfolio;

– the ongoing relevance of the Company’s investment objective, business model and investment policy in the prevailing market;

– the principal and emerging risks and uncertainties, as set out above, and their potential impact;

– the level of ongoing demand for the Company’s shares;

– the Company’s share price discount/premium to NAV;

– the liquidity of the Company’s portfolio; and

– the level of income generated by the Company and future income and expenditure forecasts.

The Directors have concluded that there is a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due over the period of their assessment based on the following considerations:

– the Investment Manager’s compliance with the investment objective and policy, its investment strategy and asset allocation;

– the portfolio is liquid and mainly comprises of readily realisable assets, which continue to offer a broad range of investment opportunities for shareholders as part of a balanced investment portfolio;

– the operational resilience of the Company and its key service providers and their ability to continue to provide a good level of service for the foreseeable future;

– the effectiveness of business continuity plans in place for the Company and its key service providers;

– the ongoing processes for monitoring operating costs and income which are considered to be reasonable in comparison to the Company’s total assets;

– the Board’s discount management policy; and

– the Company is a closed-end investment company and therefore does not suffer from the liquidity issues arising from unexpected redemptions.

In addition, the Board’s assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement which can be found in the Directors’ Report in the Annual Report and Financial Statements.

Section 172 Statement: promoting the success of the Company
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain in greater detail how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This includes the likely consequences of their decisions in the longer term and how they have taken wider stakeholders’ needs into account.

The disclosure that follows covers how the Board has engaged with and understands the views of stakeholders and how stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board’s decisions. The Board considers the main stakeholders in the Company to be the Manager, Investment Manager and the shareholders. In addition to this, the Board considers investee companies and key service providers of the Company to be stakeholders; the latter comprise the Company’s Custodian, Depositary, Registrar and Broker.

STAKEHOLDERS
Shareholders
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board’s strategy and objectives in delivering long-term capital growth.

Manager and Investment Manager
The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management (including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to successfully deliver its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation.

Other key service providers
In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the FCA and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board relies on a diverse range of advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason, the Board considers the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact with its key external service providers and receives regular reporting from them through the Board and committee meetings, as well as outside of the regular meeting cycle.

Investee companies
Portfolio holdings are ultimately shareholders’ assets and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship activities and receives regular feedback from the Manager in respect of meetings with the management of portfolio companies.

A summary of the key areas of engagement undertaken by the Board with its key stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company are set out below.

Area of Engagement
Investment mandate and objective

Issue
The Board is committed to promoting the role and success of the Company in delivering on its investment mandate to shareholders over the long term. The Board also has responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns.

Engagement
The Board worked closely with the Investment Manager throughout the year in further developing investment strategy and underlying policies, not simply for the purpose of achieving the Company’s investment objective but in the interests of shareholders and future investors.

The Company does not exclude investment in stocks based on Environmental, Social and Governance (ESG) criteria, but the approach of the portfolio managers to the consideration of ESG factors in respect of the Company’s portfolio, as well as engagement with investee companies, is to encourage the adoption of sustainable business practices which support long-term value creation.

Impact
The portfolio activities undertaken by the Investment Manager can be found in their report above.

The Investment Manager aims to construct a portfolio that is high conviction and concentrated in nature but diversified by end market exposures.

Details regarding the Company’s NAV and share price performance can be found in the Chairman’s Statement and in this Strategic Report (above).

Area of Engagement
Shareholders

Issue
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy.

Engagement
The Board is committed to maintaining open channels of communication and to engage with shareholders. The Company welcomes and encourages attendance and participation from shareholders at its Annual General Meetings. Shareholders will have the opportunity to meet the Directors and Investment Manager and to address questions to them directly. The Investment Manager will also provide a presentation on the Company’s performance and the outlook.

The Annual Report and Half Yearly Financial Report are available on the BlackRock website and are also circulated to shareholders either in printed copy or via electronic communications. In addition, regular updates on performance, monthly factsheets, the daily NAV and other information are also published on the Manager’s website at 

 

Year ended 
31 August 
2023 
Number of engagements held1 57 
Number of companies met1 26 
% of equity investments covered2 67.7 
Shareholder meetings voted at1 36 
Number of proposals voted on1 667 
Number of votes against management1 62 
% of total items voted represented by votes against management 9.3 
  ========= 

1 Source: BlackRock as at August 2023.

2 Source: BlackRock. Company valuation as included in the portfolio at 31 August 2023 as a percentage of the total portfolio value.

Engagement themes¹

Governance 86%
Social 42%
Environmental 37%

Remuneration 54%
Board composition and effectiveness 44%
Climate risk management 35%
Human capital management 32%
Executive management 19%
Corporate strategy 18%
Supply chain labour management 18%
Diversity and inclusion 18%
Sustainability reporting 12%
Governance structure 11%
Board gender diversity 11%

¹ Most engagement conversations cover multiple topics. The engagement statistics reflect the primary topics discussed during the meeting.

More detail about BIS’ engagement priorities can be found here: www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities-final.pdf.
Percentages reflect the number of meetings held in respect of the Company’s portfolio holdings at which a particular topic is discussed as a percentage of the total meetings held; as more than one topic is discussed at each meeting, the total will not add up to 100%.

Source: BlackRock.

BlackRock’s approach to ESG integration
BlackRock believes that sustainability risks, including climate risks, are investment risks. As a fiduciary, we manage material risks and opportunities that could impact portfolios. Sustainability can be a driver of investment risks and opportunities, and we incorporate them in our firm wide processes when they are material. This in turn (in BlackRock’s view) is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade. BlackRock believes that carbon-intensive companies will play an integral role in unlocking the full potential of the energy transition, and to do this, they must be prepared to adapt, innovate and pivot their strategies towards a low carbon economy.

As part of BlackRock’s structured investment process, material ESG risks and opportunities (including sustainability/climate risk) are considered within the portfolio management team’s fundamental analysis of companies and industries and the Company’s portfolio managers work closely with BlackRock’s Investment Stewardship (BIS) team to assess the governance quality of companies and investigate any potential issues, risks or opportunities.

As part of their approach to ESG integration, the portfolio managers use ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio. In particular, portfolio managers at BlackRock now have access to 1,200 key ESG performance indicators in Aladdin (BlackRock’s proprietary trading system) from third-party data providers. BlackRock’s internal sustainability research framework scoring is also available alongside third-party ESG scores in core portfolio management tools. BlackRock’s analysts’ sector expertise and local market knowledge allows it to engage with companies through direct interaction with management teams and conducting site visits. In conjunction with the portfolio management team, BIS engages with company leadership to understand how they are identifying and managing material business risks and opportunities, including sustainability-related risks and the potential impacts these may have on long-term performance. BIS and the portfolio management team’s understanding of material sustainability related risks and opportunities is further supported by BlackRock’s Sustainable and Transition Solutions (STS) function. STS looks to advance ESG research and integration, active engagement and the development of sustainable investment solutions across the firm.

Investment stewardship
Consistent with BlackRock’s fiduciary duty as an asset manager, BIS seeks to support investee companies in their efforts to deliver long-term financial value on behalf of their clients. These clients include public and private pension plans, governments, insurance companies, endowments, universities, charities and, ultimately, individual investors, among others. BIS serves as a link between BlackRock’s clients and the companies they invest in. Clients depend on BlackRock to help them meet their investment goals; the business and governance decisions that companies make may have a direct impact on BlackRock’s clients’ long-term investment outcomes and financial wellbeing.

Global Principles
The BIS Global Principles, regional voting guidelines and engagement priorities (collectively, the ‘BIS policies’) set out the core elements of corporate governance that guide BIS’ investment stewardship efforts globally and within each regional market, including when engaging with companies and voting at shareholder meetings when authorised to do so on behalf of clients. Each year, BIS reviews its policies and updates them as necessary to reflect changes in market standards and regulations, insights gained over the year through third-party and its own research, and feedback from clients and companies. BIS’ Global Principles are available on its website at www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf.

Regional voting guidelines
BIS’ voting guidelines are intended to help clients and companies understand its thinking on key governance matters. They are the benchmark against which it assesses a company’s approach to corporate governance and the items on the agenda to be voted on at the shareholder meeting. BIS applies its guidelines pragmatically, taking into account a company’s unique circumstances where relevant. BlackRock informs voting decisions through research and engages as necessary. BIS reviews its voting guidelines annually and updates them as necessary to reflect changes in market standards, evolving governance practice and insights gained from engagement over the prior year. BIS’ regional voting guidelines are available on its website at www.blackrock.com/corporate/insights/investment-stewardship#stewardship-policies.

BlackRock is committed to transparency in terms of disclosure of its stewardship activities on behalf of clients. BIS publishes its stewardship policies – such as the BIS Global Principles, regional voting guidelines and engagement priorities – to help BlackRock’s clients understand its work to advance their interests as long-term investors in public companies. Additionally, BIS publishes both annual and quarterly reports detailing its stewardship activities, as well as vote bulletins that describe its rationale for certain votes at high profile shareholder meetings. More detail in respect of BIS reporting can be found at www.blackrock.com/corporate/insights/investment-stewardship.

BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the Sustainability Accounting Standards Board provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the Task Force on Climate-related Financial Disclosures (TCFD) provides a valuable framework. BlackRock recognises that reporting to these standards requires significant time, analysis and effort. BlackRock’s 2022 TCFD report can be found at www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2022-blkinc.pdf.

By order of the Board
CAROLINE DRISCOLL
For and on behalf of
BlackRock Investment Management (UK) Limited
Company Secretary
7 November 2023

To discover more about the BlackRock Greater Europe Investment Trust click here

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funds news

UK Investment Trusts for Capital Growth investing

DirectorsTalk funds publishes the latest market insights, news and exclusive research and interviews for a wide variety of listed investment companies on the London Stock Exchange. 

Below is a selection of UK investment trusts that provide investing opportunities for capital growth.

Fidelity European Trust is top capital growth investment over 5 and 10 years

https://www.directorstalkinterviews.com/fidelity-european-trust-is-top-capital-growth-investment-over-5-and-10-years/4121124458

Miton UK MicroCap well positioned to capture a shift in investor sentiment

https://www.directorstalkinterviews.com/miton-uk-microcap-well-positioned-to-capture-a-shift-in-investor-sentiment/4121126480

How BlackRock Greater Europe Investment Trust outperformed over the last one, three, five and 10 years

https://www.directorstalkinterviews.com/how-blackrock-greater-europe-investment-trust-outperformed-over-the-last-one-three-five-and-10-years/4121124670

Fidelity Asian Values 12.8% NAV annual growth outperforms index

https://www.directorstalkinterviews.com/fidelity-asian-values-12.8-nav-annual-growth-outperforms-index/4121130428

BlackRock Frontiers Investment Trust: Are smaller markets worth the extra effort?

https://www.directorstalkinterviews.com/blackrock-frontiers-investment-trust-are-smaller-markets-worth-the-extra-effort/4121130698

Fidelity Emerging Markets Limited: Low valuations meet big opportunities

https://www.directorstalkinterviews.com/fidelity-emerging-markets-limited-low-valuations-meet-big-opportunities/4121129161

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BlackRock

BlackRock Greater Europe Investment Trust appoints Alexandra Dangoor as co-portfolio manager

BlackRock Greater Europe Investment Trust plc (LON:BRGE) has announced that Alexandra Dangoor is being named co-portfolio manager of the Company, alongside lead manager Stefan Gries. The effective date for this appointment will be from close of business on 29 September 2023.

Alexandra joined the BlackRock Fundamental European Equity Team in 2019 after two years in BlackRock’s graduate rotation program where she was an analyst in the Natural Resources and European Equity teams. Her research support for Stefan’s strategies, including the Company, has given her a chance to develop a deep understanding of the philosophy of running concentrated, high conviction, low turnover portfolios. This co-portfolio manager appointment reflects Alexandra’s excellent alpha contribution as a research analyst, as well as the team’s ongoing commitment to the development of talent from within.

The investment objective and policy of the Company is unchanged.

Alexandra earned a BSc degree in Mathematics and Economics at Bristol University, graduating in 2015, and an MSc in Investment and Wealth Management at Imperial College Business School, graduating in 2016. 

To discover more about the BlackRock Greater Europe Investment Trust click here

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BlackRock

How BlackRock Greater Europe Investment Trust outperformed over the last one, three, five and 10 years

BlackRock Greater Europe Investment Trust (BRGE) has published an update from Edison.

BlackRock Greater Europe Investment Trust is managed by Stefan Gries, who seeks to invest in the best wealth-creating businesses on a minimum three- to five-year view. The process has proved successful as the trust’s NAV has outperformed the Europe ex-UK market over the last one, three, five and 10 years. BRGE is one of seven funds in the AIC Europe sector, and its NAV total returns rank first over the last one, five and 10 years. It has also generated very acceptable double-digit absolute total returns over the last decade: NAV and share price are both +10.9% pa.

Gries employs a genuine long-term approach, behaving like an investor in businesses rather than a trader in shares, and is not influenced by the sector or geographic weightings of the reference index. The manager has four primary investment criteria when assessing a company as a potential addition to the fund: a quality management team with a clearly defined strategy and a strong track record of value creation; a high and predictable return on capital and strong free cash flow conversion; options to deploy cash in areas of high and sustainable returns; and a unique aspect, such as a product, brand or contract structure, which protects a business from future competition.

To discover more about the BlackRock Greater Europe Investment Trust click here

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BlackRock

BlackRock Greater Europe Investment Trust strongly outperforms reference index (LON:BRGE)

BlackRock Greater Europe Investment Trust plc (LON:BRGE) has announced its latest portfolio update.

All information is at 31 May 2023 and unaudited.

To discover more about the BlackRock Greater Europe Investment Trust click here

Performance at month end with net income reinvested 

One
Month
Three
Months
One
Year
Three
Years
Launch
(20 Sep 04)
Net asset value (undiluted) 0.9% 3.2% 15.0% 43.4% 677.9%
Share price 0.3% 2.6% 17.1% 40.5% 645.0%
FTSE World Europe ex UK -4.0% -0.9% 8.5% 35.4% 375.5%

Sources: BlackRock and Datastream

At month end

Net asset value (capital only): 560.30p
Net asset value (including income): 565.14p
Share price: 535.00p
Discount to NAV (including income): 5.3%
Net gearing: 6.1%
Net yield1: 1.2%
Total assets (including income): £570.8m
Ordinary shares in issue2: 101,000,161
Ongoing charges3: 0.98%

1  Based on a final dividend of 4.85p per share for the year ended 31 August 2022 and an interim dividend of 1.75p per share for the year ending 31 August 2023.
2  Excluding 16,928,777 shares held in treasury.
3  The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, write back of prior year expenses and certain non-recurring items for the year ended 31 August 2022.

Top 10 holdings Country Fund %
Novo Nordisk Denmark 8.9
LVMH Moët Hennessy France 7.5
ASML Netherlands 7.3
RELX United Kingdom 5.2
Lonza Group Switzerland 4.9
DSV Panalpina Denmark 4.5
Hermès International France 4.2
BE Semiconductor Netherlands 3.8
STMicroelectronics Switzerland 3.8
Sika Switzerland 3.2

Commenting on the markets, Stefan Gries, representing the Investment Manager noted:

During the month, the Company’s NAV rose by 0.9% and the share price by 0.3%. For reference, the FTSE World Europe ex UK Index returned -4.0% during the period.

Europe ex UK markets were down during May, reflecting concerns over the US debt ceiling negotiations, whilst also having to digest mixed economic data.

Within the tech world, news from US based Nvidia took markets by surprise as the company is seeing ‘surging demand’ for its data centre products used in generative artificial intelligence (AI) and upgraded their current quarter revenue forecast to 50% above consensus estimates. AI and chip related stocks saw strong performance during the month. On the back of the news, the IT sector rallied during the month whilst all other sectors delivered negative returns, reflecting an overall risk-off sentiment.

The Company strongly outperformed its reference index during the month, driven by both positive sector allocation and stock selection. In sector terms, the Company’s higher exposure to IT, particularly the semiconductor industry, was beneficial. A lower allocation to consumer staples, energy, telecoms and utilities also aided relative returns. The Company’s overweight allocation to consumer discretionary was negative.

The portfolio’s exposure to the semiconductor industry was the largest contributor to relative returns. Our holdings in BE Semi, ASMi and ASML were the top three performers, while STMicroelectronics was also amongst the strongest performers. As described above, the industry saw strong share price gains on the back of the Nvidia update. To meet the demands of emerging AI technologies, semiconductor chips will have to become smarter and more powerful. A number of Europe’s Wafer Fab Equipment (WFE) companies have a key role to play here.

Lonza also added to relative returns after giving a positive qualitative update. We were pleased to see the company provide this first update, coming between the usual half year annual reporting, to increase investor communication throughout the year. Key to the update, the company said the biologics division saw sustained customer demand for commercial supply. They also confirmed growth projects are progressing in line with plans and reiterated their FY 2023 outlook for high single digit sales growth and core EBITDA margin between 30-31%.

DSV was a positive contributor with shares continuing to move higher on the back of their Q1 earnings update at the end of April that showed yields are staying stronger for longer.

Our large weight in LVMH was the largest detractor. Spots of weaker China data – which are unrelated to luxury – seem to have driven some profit taking in the stock. We saw brokers pushing a more general view on China weakness and highlighting that luxury was the place that had benefited the most up to now. There were also some jitters on a new Covid variant in the country. While consumption of luxury within China may be losing a bit of steam from the initial restart, companies such as LVMH are seeing strength coming through in ‘offshore’ spending in places such as Hong Kong and Macau.

Not owning large reference index constituents Roche, Siemens and SAP hurt relative performance.

Outlook

European equities have significantly outperformed other regions over the last six months, as the outlook for Europe has materially improved. The domestic energy crisis has been de-risked with prices down and storage levels high, and as one of the largest exporters to China, many European companies stand to benefit from the country’s ongoing re-opening. On the broader European financial system, despite recent volatility owing to concerns around US regional banks and the forced merger of UBS and Credit Suisse, there have been assurances from central bankers and regulators on the sector’s financial health, helping to restore some confidence.

Despite year-to-date gains, the set up for the European equity market remains favourable relative to developed market peers such as the US and European equities are still under-owned and valuations remain attractive.

Whilst there are a number of unknowns from a macroeconomic perspective, we see opportunities for attractive returns in select areas. Corporate balance sheets are in decent shape and in much better positions than in previous downturns. Many companies in Europe have spent the last decade deleveraging balance sheets and interest coverage is significantly higher than during the Global Financial Crisis or other prior periods associated with deep recessions or prolonged bear markets. Corporate spending intentions also remain healthy and this spend is often linked to transformational capex.

Lastly, long-term structural trends and large amounts of fiscal spending via the Recovery Fund, Green Deal and the REPowerEU plan in Europe can drive demand for years to come, for example in areas such as infrastructure, automation, innovation in medicines, the shift to electric vehicles, digitization or decarbonisation. We believe the portfolio is well aligned to many of these structural spending streams.

To discover more about the BlackRock Greater Europe Investment Trust click here

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Interviews

BlackRock Greater Europe has outperformed sector peer group for last 10 years (VIDEO)

The BlackRock Greater Europe Investment Trust (LON:BRGE) which invests in small, mid and large-cap companies across Europe with the aim of providing capital growth is the topic of conversation when Robert Murphy Head of Investment Trusts at Edison Group joins DirectorsTalk Interviews.

Rob explains how the trust fared in last year’s macro driven market, the key characteristics of BRGEs portfolio companies, why the manager is relatively upbeat about the prospects for the European economy and he’s now more positive on the outlook for European banks.

https://vimeo.com/789964063

Europe is home to some of the world’s most dynamic and exciting companies. Targeting capital growth, BlackRock Greater Europe Investment Trust plc invest across high-quality small and large companies in the region, including fast-growing companies in Emerging Europe. The Trust’s experienced management team focus on identifying high quality companies that can be held for the long term.

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BlackRock

BlackRock Greater Europe Investment Trust quality driven and consistently outperforming peers (Analyst Interview)

BlackRock Greater Europe Investment Trust plc (LON:BRGE) is the topic of conversation when Rob Murphy Managing Director at Edison Investment Research joins DirectorsTalk. Rob explain BRGE’s philosophy and process, how the trust has performed versus the European market and its peers in the AIC Europe sector, the constructiveness of managers on the outlook for European equities and highlights the structure of the portfolio with some recent transactions.

https://vimeo.com/483429463

The Company aims to provide capital growth, primarily through investment in a focused portfolio constructed from a combination of the securities of large, mid and small capitalisation European companies, together with some investment in the developing markets of Europe.

For more information on BlackRock Greater Europe Investment Trust visit:

blackrock.com/uk/brge

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Question & Answers

BlackRock

BlackRock BRGE sees improvement in performance over the last six months says Edison Group

BlackRock Greater Europe Investment Trust plc (LON:BRGE) is the topic of conversation when Edison Group’s Head of Investment Trusts Robert Murphy caught up with DirectorsTalk for an exclusive interview.

Q1: How did BlackRock Greater Europe Investment Trust fare in last year’s macro driven market?

A1: Well, last year was a tough year for the trust. As you say, it’s a capital growth fund, we had rising interest rates and inflation which tend to depress the earnings of growth companies so it suffered from that. In addition, it had some Russian exposure which you had to write down to zero over the year which obviously was a one-off factor which won’t be repeated. They also had as couple of issues with some of the investments which didn’t do quite as well as expected but the core companies like Novo Nordisk and LVMH in the luxury good sector performed strongly.

The last six months have seen an improvement in performance and it’s worth focusing on the longer term performance of the trust which still remains excellent. It’s outperformed the sector peer group over the last 10 years by about 15% and about 17% over 5 years, despite this weaker year.

So, I think focussing on the long term is the key with these kind of funds and the manager invest for the long term.

Q2: What can you tell me about the key characteristics of BRGE’s portfolio companies?

A2: The portfolio itself is built out of an opportunity set of about 2,000 companies and it only picks the highest conviction 35-40 ideas out of those. It has good concentration and the top ten, for instance, are 52% of the portfolio so it has high conviction in the companies. Many of these are actually global leaders in their industry which means that they’re not completely tied to what happens in Europe in terms of the economy or market.

The manager believes that the market is underestimating the earnings prospects of those companies over the longer term.

The key considerations in choosing a company are its return on cash characteristics so they like highly cash generative businesses that can deploy that cash into growth opportunities at high returns, a strong corporate culture and also the ability to control cost and to also have pricing power, particularly in an inflationary environment.

Q3: Why would you say that the manager is relatively upbeat about the prospects for the European economy?

A3: The European market is attractively valued, certainly relative to the US and the global market, sentiment is depressed and in addition, the multiple compression that we’ve seen, the manager believes is largely complete now.

Remember, in terms of the companies they’re investing in, those earnings, cash flow and growth fundamentals are going to matter more than if the market’s rotating from one theme to another in the shorter term.

If you look at the economy as a whole, corporate and consumer balance sheets are in pretty good shape in Europe, certainly post the financial crisis, and we’ve seen a decade or more of deleveraging since then so debt levels are manageable.

Labour shortage means that actual consumers are getting wage increases but those are not too severe and are manageable by most corporates. At the high end of the consumer businesses, those luxury goods names like LVMH and Ferrari, those are doing well because they’re actually benefitting from the environment. They tend to have more financial assets and don’t suffer from the cost of living crisis to the same degree as consumers at the lower end.

Q4: Having held a negative view for a long time, why is the BlackRock Greater Europe Investment Trust manager now more positive on the outlook for European banks?

A4: So, the fund is still overweight consumer discretionary, the high end type companies; tech, healthcare, industrials, but it has reduced the underweight in financials. I think the reasons there are three or four-fold:

Banks do now have stronger balance sheets, credit qualities is decent, there hasn’t been a lot of loan growth over the last few years, they’ve written back many provisions that weren’t needed during COVID, and with interest rates rising, you’re seeing less interest margins rise and that’s a key driver of revenues and profit in the banks.

So, the manager thinks there’s good potential for positive earnings revisions in those companies at this stage.

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BlackRock

BlackRock Greater Europe Investment Trust Analyst Q&A “very consistently performing fund” (LON:BRGE)

BlackRock Greater Europe Investment Trust plc (LON:BRGE) is the topic of conversation when Edison Investment Research Managing Director Rob Murphy caught up with DirectorsTalk for an exclusive interview.

Q1: Rob, could you describe BlackRock Greater Europe Investment Trust’s philosophy and processes?

A1: Edison put out a note on the 19th of November which was titled ‘Philosophy and process shining through’ so it’s a good place to start with that.

BRGE is really focused on capital growth, it’s an all-cap fund so it looks at both larger and smaller accounts and it’s pretty focused so about 30 to 45 names typically, and they look at both developed Europe and also some emerging European countries.

It’s managed by Stefan Gries who does the developed part of the portfolio and Sam Vecht who manages the emerging European parts and they’re backed up by the BlackRock equity team which has 21 investment professionals. Obviously, they have access to the whole of the group resources and corporate access which is very important for them because they like to see companies and, obviously ask them all the important questions they need to know.

The focus of the companies themselves is very quality driven, they look at good balance sheets, strong management that has demonstrated an ability to grow that can articulate well what their strategy is. They focus on companies that deliver high returns on capital but then they’ll also have the options to deploy that capital using strong free cash flow to fund further sustainable growth.

They like something extra in the companies they manage, a special feature that could be a desirable or unique product, brand, certain types of contract structures and they take a longer-term view which allows them to capture the underappreciated earnings power of these kinds of companies.

They also employ a very constant process monitoring the positions they have, every position is competing against the others for their capital so they always want to make sure they have the conviction best ideas in there. They will exercise sell discipline if information changes or if performance and valuation becomes too high for them so that’s basically the process they’re using.

Q2: How has the trust performed versus the European market and its peers in the AIC Europe sector?

A2: It’s been a good performer, as people know growth has been a good sector to be in in the markets, but they’ve actually demonstrated good performance over the longer term, not just more recently.

The trust in terms of NAV total return has outperformed the relevant Europe Ex UK indices over one, three, five, ten years and since inception back in September 2004 and relative to the peer group in the AIC, it’s basically number one in greater than three, five, ten years. It’s number two over one year so just pipped by one of the fund over one year so you can see it’s been a very consistently performing fund.

Q3: Now, you touched on the managers earlier, are BRGE managers constructive on the outlook for European equities?

A3: Yes, I think they are. We’ve seen obviously a few very positive developments coming through on COVID, we have now a number of very strong vaccine candidates now and Europe has responded with the €750 billion recovery fund which is a very significant development. That will support a number of investments that the company can actually benefit from too, especially in moving to a lower carbon future, biofuels, electric vehicles and so forth.

Having that fund behind the block is expected to reduce the risk premium on European equities and in a way, it’s helping consolidate the fiscal picture across Europe so a lot of that money will help some of the Southern European countries and could be quite significant for those.

I think the managers would also stress that you don’t have to be hugely optimistic on Europe itself to find very good companies that that can perform well because many of our companies have global brands, a lot of foreign revenues and have, again, as I said, unique products or features which attracts the company to those companies.

So, overall, they’re constructive, we saw evidence actually of the pickup in summer when we had some easing of lockdowns across Europe so there was quite a big pickups, it’s come back the other way a bit recently.

I think that’s given us a picture of what we should hopefully be able to move into next year as we get through the spring and hopefully the vaccines get rolled out.

Q4: You hinted at the portfolio earlier, could you highlight the structure of the BlackRock Greater Europe Investment Trust portfolio and some of the more recent transactions?

A4: As I said, the portfolio is pretty concentrated, the top 10 positions are about 45% of the portfolio and in terms of positioning by sector, it’s very overweight technology, that’s 15% above the benchmark, industrials and consumer services, and also a little bit on the healthcare side.

Where they’re underweight is on the consumer goods side, financials, utilities, and basic materials so they have that tilt in there and they would probably, if you look at the note, they will categorise the portfolio maybe into three areas with regards to sort of COVID.

You’ve got the resilient companies which would be things like DSV or Royal Unibrew in Denmark and there’s those that benefit from COVID such as Lonza which is contract drug manufacturing. Then there’s those that are suffering a bit typically because of less travel, which would be Safran which is aerospace and Amadeus which is travel technology but they reviewed those positions and they’re very happy to keep those on and,  obviously, they’ll benefit as we get recovery coming through.

In terms of what they’ve been adding to new companies they’ve added it has been in the technology sector, Netcompany Group in Denmark, that’s an IT services business, the Danish government is a customer and they’re helping people digitise effectively so moving processes from paper to digital processes. There’s billions of tax documents that need digitising for instance.

Another one would be ALD Automotive in France which is a corporate fleet leasing business, fears over writing down the fleet because of diesel had been over egged and 20% of the fleet is now electrical hybrid. So, although that’s a small cap, those kinds of companies can fit into this strategy. It’s on a Pe of 8, it makes a return on equity of 15 and of course, because you’re an investment trust, you can hold smaller, less liquid names because you don’t have the flows that you get through open-ended vehicles.

As a result of COVID, Stratec Biomedical Systems in Germany, basically upgraded guidance twice, it experienced supernormal demand from COVID so there was less potential for those upgrades to come through and it was no longer attractively valued. So that’s an example of something that they sold.

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Analyst Notes & Comments

BlackRock Greater Europe has outperformed sector peer group for last 10 years (VIDEO)

The BlackRock Greater Europe Investment Trust (LON:BRGE) which invests in small, mid and large-cap companies across Europe with the aim of providing capital growth is the topic of conversation when Robert Murphy Head of Investment Trusts at Edison Group joins DirectorsTalk Interviews.

Rob explains how the trust fared in last year’s macro driven market, the key characteristics of BRGEs portfolio companies, why the manager is relatively upbeat about the prospects for the European economy and he’s now more positive on the outlook for European banks.

https://vimeo.com/789964063

Europe is home to some of the world’s most dynamic and exciting companies. Targeting capital growth, BlackRock Greater Europe Investment Trust plc invest across high-quality small and large companies in the region, including fast-growing companies in Emerging Europe. The Trust’s experienced management team focus on identifying high quality companies that can be held for the long term.

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BlackRock

BlackRock Greater Europe Investment Trust “remains considerably ahead of its benchmark”

BlackRock Greater Europe Investment Trust plc (LON:BRGE) has two co-managers: Stefan Gries, since June 2017, covering developed European markets, and Sam Vecht, since the fund’s launch in September 2004, covering emerging European markets. The stock market rotation from growth to value stocks and the war in Ukraine have caused a setback for the trust in recent months. Nevertheless, BRGE remains considerably ahead of its benchmark over the last three, five and 10 years in both NAV and share price terms and it remains top of the AIC Europe sector peer group over these periods.

Edison Investment Research Analyst view

Developed markets typically make up c 90% of BRGE’s portfolio with c 10% in developing markets. However, the developing market exposure is now considerably lower following the write-down of the fund’s Russian securities due to the war in Ukraine. Gries says that he is regularly questioned by investors as to why he does not increase the trust’s cyclical exposure but is sticking to his successful approach of seeking high-quality companies that have the potential to generate significant value over the long term; his approach is to be ‘an investor in businesses, not a trader in shares’. BRGE’s portfolio is made up of companies across the market cap spectrum and the manager’s bottom-up approach has resulted in a fund with notable overweight exposures to the technology, industrial and consumer discretionary sectors, while the largest underweight exposure is financial stocks. The recent pullback in BRGE’s shares could represent a good entry point for long-term investors.

Currently trading close to NAV

Despite a step-back in relative performance and having had a modest exposure to Russian securities, BRGE regularly trades at a premium. The current 0.5% share price discount to cum-income NAV compares with a range of a 4.1% premium to a 3.7% discount over the last 12 months (average 1.6% premium). Over the last three, five and 10 years, the trust has traded at average discounts of 1.6%, 2.8% and 3.4% respectively.

Blackrock Greater Europe Investment Trust aims to provide capital growth, primarily through investment in a focused portfolio constructed from a combination of the securities of large, mid and small capitalisation European companies, together with some investment in the developing markets of Europe.

To learn more about the BlackRock Latin American Investment Trust plc please follow this link: blackrock.com/uk/brla     

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BlackRock

BlackRock Greater Europe Investment Trust quality driven and consistently outperforming peers (Analyst Interview)

BlackRock Greater Europe Investment Trust plc (LON:BRGE) is the topic of conversation when Rob Murphy Managing Director at Edison Investment Research joins DirectorsTalk. Rob explain BRGE’s philosophy and process, how the trust has performed versus the European market and its peers in the AIC Europe sector, the constructiveness of managers on the outlook for European equities and highlights the structure of the portfolio with some recent transactions.

https://vimeo.com/483429463

The Company aims to provide capital growth, primarily through investment in a focused portfolio constructed from a combination of the securities of large, mid and small capitalisation European companies, together with some investment in the developing markets of Europe.

For more information on BlackRock Greater Europe Investment Trust visit:

blackrock.com/uk/brge

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BlackRock

BlackRock Greater Europe Investment Trust “long-term dividend growth record intact” says Edison

BlackRock Greater Europe Investment Trust plc (LON:BRGE) has passed an important test, with its investment philosophy and process continuing to deliver despite an unprecedented shock to markets and economic growth. Co-managers Stefan Gries (developed Europe) and Sam Vecht (emerging Europe) remain constructive on the outlook for Europe in 2021; they believe the region is dealing with the coronavirus outbreak better than some other areas and there has been an enormous fiscal and monetary response to the crisis. Although timelines have been pushed out, the managers are confident that a new economic cycle is underway in Europe, a region that is very geared into the health of the global economy. They believe that if the risk premium declines, Europe will become a more investible market, and in the meantime, they are still finding attractive, high-growth companies that are creating long-term value for shareholders.

To discover more about the BlackRock Greater Europe Investment Trust click here. 

BRGE’s current 2.3% discount to cum-income NAV is narrower than the 3.9% to 4.4% range of average discounts over the last one, three, five and 10 years. Despite a tough economic environment, and helped by a favourable tax ruling, BRGE was once again able to pay a higher dividend in FY20, thereby keeping its long-term dividend growth record intact. The trust currently offers a 1.3% yield.  

All reports published by Edison are available to download free of charge from its website www.edisongroup.com

About Edison: Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.

Edison is authorised and regulated by the Financial Conduct Authority.

Edison is not an adviser or broker-dealer and does not provide investment advice. Edison’s reports are not solicitations to buy or sell any securities.

To discover more about the BlackRock Greater Europe Investment Trust click here. 

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