BlackRock Greater European beats benchmark

Over the twelve months to 31 August 2016, BlackRock Greater European’s net asset value per share increased by 16.9%, compared with a rise of 15.4% in the FTSE World Europe ex UK Index. The share price rose by 13.8% over the same period. The Board is proposing the payment of a final dividend of 3.65p per share for the year (2015: 3.35p). This, together with the interim dividend of 1.65p per share (2015: 1.65p), makes a total dividend for the year of 5.30p per share (2015: 5.00p).

During the year, the underlying trend for the Europe ex-UK market was downwards, falling by 1.2% in Euro terms. However, returns in sterling terms were strong as the pound weakened from a price of EUR1.36 against the pound, to EUR 1.18 by the end of the year. Heightened uncertainty means that the best performance has been within sectors characterised by stable cash flows, such as telecoms, tobacco and food and beverage companies.

Adidas, the German sportswear brand, proved the greatest contributor to performance over the year when compared with the broader market. The share price increased by 164% as investors warmly received the company’s plans for restructuring with a new CEO recently joining the company. Both sales and earnings momentum have been very strong for the group, in particular through the UEFA Euro 2016 football tournament where they saw record football-related sales of EUR2.5 billion during the quarter. Straumann, a Swiss dental implant manufacturer, also provided strong returns. The company has continually reported robust results over the year driven by solid sales growth globally and efficient cost management.

A number of positions within emerging Europe also proved profitable, with allocation to the region over the year being positive for performance. In particular, we saw strong returns in our Russian positions Yandex and Sberbank. Yandex, an IT company specialising in internet-related services and products and operating the largest search engine in Russia, performed well as internet advertising accelerated with the recovery of the Russian economy. Sberbank, Russia’s largest state-owned bank with a 50% share in the retail deposit market, reported strong results in the first half of 2016. The bank continues to build on its restructuring strategy that has driven much of its success over
the past few years, through improving its services and the efficiency with which they are delivered.

On a less positive note, detractions came from a number of names within the financial sector, including Italian bank Intesa Sanpaolo and asset manager Anima. Anima was especially impacted by the market volatility seen over the year, despite inflows into the business remaining solid. However, concerns in the Italian banking system pertaining to bank capitalisation have impacted a number of Anima’s distribution partners and thus raised questions about the future ability of the asset manager to gather assets. Given this, we have reduced the size of the position.

A position in Mail.Ru, a Russian IT company providing social media platforms and gaming, detracted from returns as the online gaming business posted negative results in the first half of 2016. However, we believe that the stock remains attractive as the recent introduction of in-stream mobile advertising has the potential to drive revenues in the medium term as 70 million of Russia’s 80 million internet users have active VK (Russia’s most popular social network VKontakte) accounts.

Bank of Ireland also detracted from performance. Partially, the falling share price came as a result of the UK’s decision to exit the EU, given its large exposure to the UK economy, where the bank garners 25% of its profitability. More broadly, the stock was impacted by political pressures at home, as well as increasing regulatory costs and a UK banking tax. However, despite the environment of compressing yields, company results showed resilience within its core operations and we believe the stock has room to recover.

BRGE : BlackRock Greater European beats benchmark

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