Tap into quality and emerging potential via BlackRock Greater Europe Investment Trust

To access these opportunities you need a fund that can find them such as BlackRock Greater Europe Investment Trust (BRGE). Its managers invest in good quality, well capitalised companies with strong management teams that can create value for shareholders over the long term. The trust's managers look for companies with high rates of return, attractive free cash-flow profiles, and a brand, product or contract structure that protects their returns.

So, for example, although companies exposed to short-term activity in the industrial sector experienced an earnings slowdown in the second quarter, BlackRock Greater European Investment Trust was generally not exposed to these types of businesses.

The trust's managers can search for investments across large-, mid- and small-caps. And as well as being able to invest in any country included in FTSE World Europe ex UK index, it can also invest in developing European countries and Russia, giving the potential for extra growth and diversification. In these regions, its managers look for attractively valued businesses operating within faster-growing economies, that often deliver highly attractive growth in cash flows and dividends.

Stefan Gries became co-manager in 2017, and the investment trust has beaten FTSE World ex UK index in 2017, 2018 and so far this year. It also has a good long-term performance record. 

The emerging Europe segment of the trust has been run since launch by Sam Vecht, who has a good long-term record on funds including BlackRock Frontiers Investment Trust (BRFI). The trust's managers are supported by 21 European equity analysts and seven emerging Europe analysts at BlackRock.

The trust is not at bargain basement levels: over the past few years it has sometimes traded at a wider discount to net asset value (NAV) than the current 4.4 per cent – a level roughly in line with its one- and five-year averages. Even if its holdings do well, negative sentiment in the near term on European economic growth could prevent the share price from doing well and the discount from tightening further.

The trust is highly concentrated, typically only holding 30 to 45 investments, and at the end of October its 10 largest holdings accounted for 54.4 per cent of its assets. Its exposure to emerging markets also increases risk and the potential for volatility.

BlackRock Greater Europe Investment Trust’s ongoing charge of 1.08 per cent, meanwhile, is one of the more expensive ones in the Association of Investment Companies (AIC) Europe investment trust sector.

However, the trust’s managers aim to ensure risk and returns are diversified by end-market exposures and work with the BlackRock risk and quantitative analysis group to ensure that portfolio risk is deliberate, diversified and scaled. For example, the five stocks that made the greatest contribution to performance during its last financial year were exposed to emerging markets banking, low- and high-end consumer retail, and industrial manufacturing.

Exposure to emerging markets is limited to 25 per cent of the trust's assets, and direct investment in Russia to 10 per cent of its assets.

The trust’s board also looks to limit the discount to NAV via share buybacks and every six months considers doing a tender offer.

Even if the trust's share price does not do well in the short term, its holdings look well placed to make good returns over the long term, which should eventually be reflected in its share price. This would compensate investors for its ongoing charge and, if the trust does well and grows in size, the ongoing charge should reduce. The trust also invests in emerging and frontier markets, which require more extensive research and due diligence than developed markets, a reason for a higher charge.

So, if you are seeking growth over the long term and have a higher risk appetite, BlackRock Greater Europe Investment Trust looks like a good way to get this and exposure to Europe's promising opportunities. Buy. LW