Despite a lacklustre economy, Europe is home to some fantastic companies in growing markets that can build wealth for investors over the long term. On the BlackRock Greater Europe Investment Trust plc, we are on a mission to find them. Co-manager Stefan Gries explains more.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
European markets have long demanded an active approach. Markets have been stuck in a holding pattern for some time and investors have had to sift carefully to find the gems against an unsupportive economic backdrop. We see several factors in the market that can drive European equities higher, but still believe judgment is important.
Investors are warming up to Europe after a multi-year hiatus. They were deterred by political tensions and weakening end markets, but with these pressures easing, they are looking to the region once again as a potential option for their ISA portfolio.
We believe it is important to pick the right companies. Structural challenges remain in numerous markets within Europe; car makers, for example, are facing a challenge from the transition to electric vehicles. However, there are plenty of companies in the region exposed to long-term growth themes but with superior market positions and products, brands or contract structures. This allows for a greater sustainability of returns.
But how do we find them? Our aim is to look across our investable universe of more than 2,000 companies and to identify the 35 to 40 most compelling investment cases Europe has to offer. We want to find assets we can own for the next three to five years, so we look at companies’ end markets, their income streams and how they can generate returns for our investors. All businesses we own should be well-run with a clearly articulated strategy, high returns on capital, strong cashflow and with opportunities to invest at attractive returns.
We believe this is how companies create wealth over time. There are three key ingredients to creating value for shareholders – high returns, growth and time – with the latter meaning that as long-term investors, we give management the time required to create value for shareholders.
Finding these companies is not easy. The scope of our research helps to go deeper with our analysis. Our European team is one of the best-resourced in the market with a huge amount of experience allowing us to carefully pick stocks across the entire market. This is important in uncovering opportunities that others might have missed. We also have the rest of the fundamental equity platform at BlackRock that allows us to exchange views and get insights from colleagues in Asia, Emerging Markets, the UK and Natural Resources, as well as from colleagues across asset classes.
Looking long term
The investment trust has a number of advantages. It supports our high-conviction approach and the closed-end structure allows us to go further down the market cap spectrum. This means we do not have to buy and sell in response to inflows and outflows from the Fund and therefore are not swayed by short-term market movements. We can also own assets through the cycle, which is particularly important for our Emerging European exposure, where companies may be smaller and less liquid.
Equally, it is clear we cannot run client portfolios without thinking about sustainability and environmental, social and governance (ESG). We have an independent team of 45 people whose only job is to hold boards accountable for implementing appropriate governance in the businesses we own. Equally, we have a 28-strong team who are part of BLK Sustainable Investing, who report on the relationship between sustainability issues, risk and long-term financial performance. ESG is fully integrated in our research process today.
In our view, the Trust offers shareholders an opportunity to participate in wealth creation of some of Europe’s finest businesses, a natural choice for a long-term ISA portfolio. We believe these companies can grow their earnings over the long term, irrespective of the overall market environment. With global asset allocators significantly underweighting the region, any small change in fortunes could prompt a considerable change in performance for European companies.
For more information on this Trust and how to access the opportunities presented by European markets, please visit www.blackrock.com/uk/brge.
Unless otherwise stated, all data is sourced from BlackRock as at March 2020.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Exchange rate risk: The return of your investment may increase or decrease as a result of currency fluctuations.
Emerging Europe: Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore, the value of these investments may be unpredictable and subject to greater variation.
Liquidity risk: The Trust’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.
Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.
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