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BlackRock Greater European subscription share exercise on knife edge

BlackRock Greater European says its undiluted net asset value per share increased by 2.1%, compared with a decrease of 0.8% in the FTSE World Europe ex UK Index. Over the same period, the Company’s share price rose by 3.2% (all percentages calculated in sterling terms with income reinvested). Since the period end to 18 April 2016, the Company’s undiluted NAV has increased by 5.3% compared with a rise in the FTSE World Europe ex UK Index of  6.6% over the same period.

BlackRock Greater European has 20.5m subscription shares in issue that must be exercised on or before 29 April 2016, potentially expanding the fund by £51m. The exercise price is 248p and the current share price of the ordinary shares is 251p and so the decision to exercise rests on a knife edge.

The manager’s report says stock selection drove performance over the period. In particular, a strong performer within the banking industry was Sberbank of Russia. Despite the volatility that has marked the Russian market in recent months, many Russian corporates such as Sberbank are adjusting better than might be perceived. As the Ruble has depreciated under the recent move to a floating exchange rate mechanism, Russian corporate competitiveness has improved, a result which is indicative of a more flexible economy than in the past. Despite the difficult economic conditions, corporate profit margins have increased so far this year to the highest level since 2011. This does not remove the pain of devaluation, but it does assist with recovery and growth subsequent to an economic shock.

Another strong performer was our holding in Adidas. Towards the end of 2015 the company released solid results which were 4% to 5% ahead of consensus. Sales were reported at 17.7% growth, supported by strong underlying expansion in the Adidas brand. Pertinently, sales were resilient across most regions, with Latin America and Chinese figures robust, proving the emerging market consumer remains active. Adidas’ share price further benefited from the announcement of a new CEO who is well regarded by the market for his reputation of efficient cost management.

Irish airline Ryanair also contributed positively to returns as the company raised its net income guidance for the full year by 25% in September 2015. In addition, the share price responded positively to the news that the proceeds from the sale of its stake in Aer Lingus were to be distributed to shareholders in the near term. The airline reports continued strength in traffic with load factors, which indicate the amount of a flight’s capacity filled, increasing
year-on-year. Ryanair is likely to prove well positioned for the upcoming summer traffic, given holiday maker’s demand for more central European destinations, the core of Ryanair’s business, in light of fears of both extremist action and potential health risks, such as the Zika virus, emanating from Latin America and the Middle East.

On a more negative note, the largest detractor over the period was BRGE’s holding in Italian asset manager Anima. In addition to the stock being impacted negatively by year-to-date mark to market moves, concerns have risen around asset flows. Troubled Italian bank Banca Monte Paschi di Siena is one of the main distribution partners for Anima’s funds. Anxieties have risen regarding deposit outflows at Monte Paschi which would subsequently impact upon the asset gathering capacity of Anima. Net flows for Anima in both January and February of 2016 have been slowing, but remain positive in what is a challenging environment for asset managers. Given the enduring low interest rate environment, they believe Anima is likely to continue capturing asset flows as Italian investors look for alternatives to domestic bonds. On a broader basis, the decision to have a higher exposure to financials hindered performance as the sector sold off sharply at the onset of 2016. The lower exposure to consumer goods also impacted returns negatively. In particular,  this was evident within the food & beverage subsector, which performed strongly as
investor capital moved into defensive assets with perceived higher levels of safety. In addition, the use of gearing detracted from returns over the period, averaging a net cash position of -0.3%.

BRGE : BlackRock Greater European subscription share exercise on knife edge


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