BlackRock Greater Europe (BRGE) risked an accusation of style drift today after it accepted the appointment of a new co-manager, Brian Hall, to bring in some “value” stock picking skills after its “growth” approach severely underperformed in its latest financial year.
In the 12 months to 31 August the £556m investment trust’s net asset value dropped 6.1%, 17% behind the 10.9% gain in the FTSE World Europe ex-UK index. Under lead fund manager Stefan Gries, the portfolio has been underweight the financial, utility and defence stocks that have contributed to 80% of the recovery in European markets, while being overweight in technology companies that have been more volatile.
Outgoing chair Eric Sanderson said the biggest hit to performance came from the slump in Novo Nordisk, the Danish obesity drugs giant, whose shares have slumped this year on signs it was losing ground to US rival Eli Lilly. Having held 8.9% in the stock, making it the largest holding last year, Gries had finally sold out in August.
Gries acknowledged the impact of several large stock setbacks, including semiconductor companies ASML, ASMi and BE Semiconductor upended by the emergence of Chinese AI startup DeepSeek in January.
He also took responsibility for “not moving faster or more decisively as the outlook for earnings for individual companies started to deteriorate.”
He added: “We believe it is also important to note the difficult market backdrop which has existed for most active market participants. Although the broad European market rose this was driven by a narrow range of stocks and themes and the portfolio’s quality growth positioning remained out of favour.”
Sanderson said there had been a trend for some time in which value stocks outperformed growth with the result that the company’s underlying investment returns now lagged the index benchmark over three and five years, although over 10 they were 13.1% ahead.
To help Gries develop a more balanced, less style-dependent portfolio, Hall, an experienced manager of some of BlackRock’s core open-ended European funds, has replaced co-manager Alexandra Dangoor.
Sanderson said BlackRock had proposed “giving greater consideration to investing selectively in quality value ideas, which should help dampen fund volatiity, ultimately resulting in enhanced return outcomes over time. Any changes will be implemented carefully,” he said.
Conscious of investor sensitivity to fund managers changing their spots, the chair said “the core of the portfolio will remain invested in Europe’s most compelling quality growth stocks, and the board are conscious that the company has outperformed its growth-focused peers in the period under review.”
Analysts were cautious about the move. “Proactiveness is good but generally we are wary of changing investment strategies after extended periods of underperformance rather than sticking to their knitting, as the change could be made just before things swing back into favour, while investors have also bought into a particular mandate,” said Stifel analyst Will Crighton, who said he would quiz the company on the extent of any shift in the portfolio.
BRGE has dropped to the bottom of the five-strong Europe investment trust sector over one year with a total shareholder return of 8% against the 19.4% group average. Over five years it has done better, returning 36.6% while its closest rival Baillie Gifford European Growth (BGEU) has fallen 13%.
However, in that period it lags sector leader JPMorgan European Growth & Income (JEGI), whose balanced approach has romped away with a 146% total shareholder return. Fidelity European (FEV), the most value-oriented trust in the sector, ranks second with an 83.4% return.
The annual results showed BRGE bought back £24.2m of shares in the financial year and a further £6.9m since September to keep the share price discount at 6%, a comparatively low level that enabled the board to avoid holding a tender offer this month.
As announced in September, BlackRock agreed to a cut in its annual management fee which should see ongoing charges fall from 0.95% to 0.77%.
After nine years on the board, Sanderson will step down at the annual general meeting next month and be replaced by Andrew Impey, currently chair of Pacific Assets (PAC), who joined as a non-executive director in April.
Our view
Matthew Read, senior analyst at QuotedData, said: “It is little secret that BlackRock Greater Europe has struggled with its performance during the last few years, and, against this backdrop, it is good to see its board acknowledging the problem and taking action to try and address this. We welcome the fee cut – it is significant and makes BRGE’s offering much more competitive versus peers.
“On the manager change, a shift to a mix of value and growth has worked for other trusts such as JPMorgan American, but maybe there’s a question to consider about timing. While bringing in Brian Hall and tilting the portfolio more towards ‘quality value’ ideas should, in theory, dampen its volatility, we have to question whether, having faced the performance headwinds that growth has seen in recent years, now is the time to be tilting BRGE’s portfolio more towards value? Growth has benefited in recent months as the prospect of interest rate rises have receded and, with Europe increasingly back in vogue and the European economy not showing any signs of overheating, there could be more to come for European stocks and growth stocks in particular.”
