Investors have ignored the recovery in European stocks that have propelled BlackRock Greater Europe (BRGE ) to outperform, allowing manager Stefan Gries to pick up semiconductor and biotech plays.

Half-year results last week showed the £550m European equity investment trust delivered 16.6% growth in net asset value (NAV) including dividends in the six months to the end of February, underpinning a total shareholder return of 15.9%.

This outstripped the FTSE World Europe ex-UK index, which gained 14.6%, benefiting from a stock market recovery driven by a milder-than-expected winter that reduced energy prices, falling inflation, and the reopening of major trading partner China following its strict Covid-19 restrictions.

Gries - who took sole responsibility for the closed-end fund last year after Sam Vecht stepped down – said Europe had been deemed ‘uninvestable’ following the outbreak of war in Ukraine and the resulting energy crisis, with expectations for the region to enter recession. However, it has bucked consensus pessimism and had one of the best starts to the year of any global market.

BRGE shares have rallied nearly 19% this year leaving the trust with one of the best returns in its sector over three years, generating a total return for shareholders of 57.9%. The shares trade 3% below net asset value, the lowest discount in its peer group.

Despite this, Gries said ‘there has been little investor participation in the recent rally’.

‘While outflows from the asset class have slowed, and there has been a degree of short closing, we have not seen major asset allocation changes towards Europe yet, which remains an under-owned asset class overall,’ he said.

The best performers for Gries came from the technology sector, notably semiconductor companies that enjoyed ‘a rapid recovery’ after the tech sell-off prompted by interest rate rises in 2022.

‘During that time, we had held on to shares arguing that higher interest rates will not have a material impact on the companies’ long-term prospects,’ he said.

On top of this, he added that semiconductors have become ‘more structural and less cyclical’ and that the companies he owns ‘service different parts of the semiconductor value chain’.

Holding BE Semiconductor saw shares rise 56% over the period and Gries said it is ‘well positioned to benefit from the industry adopting new and innovative process’, while ASML has reported four ‘stellar’ quarter reports and ‘confident targets for 2030, with guidance for net sales to grow more than 25% compared to 2022’.

Gries is so confident in the semiconductor sector that he added French company STMicroelectronics to the portfolio.

‘STM has been outgrowing its end markets helped by a number of new innovative product launches around auto, smartphones, and industrial,’ he said.

‘This has allowed STM to grow sales at 13% compound annual growth rate since 2016. We believe the company has the potential to continue on this path due to its continued innovation in power chips for electric vehicles, sensors for consumer electronics, and connectivity for industrial applications.’

Healthcare-related stocks also proved profitable over the period, with diabetes specialist Novo Nordisk lifting the trust. It has a ‘major opportunity to win in the obesity market’ with new drug Wegovy, which has been cleared by the US Food and Drug Administration to increase supply.  

‘We expect that the company will be able to continue to grow 10% to 15% out to 2025, with Ebitda margins in the low 40% range,’ said Gries.

The manager added a new biopharmaceutical group Sartorius to the portfolio. It runs a portfolio of solutions that focus on the manufacture of biologic drugs, vaccines, and genetic therapies.

‘Its business addresses different stages of the manufacturing process… [and] is well placed for structural growth,’ said Gries.

There were stock-specific ‘hiccups’ over the six months, namely automated cell counter manufacturer ChemoMetec, which came under pressure after the chief executive announced his resignation. However, Gries said a meeting with management has reassured him that the resignation is ‘for personal reasons’ and there will be a smooth handover.

The group is also struggling with a slowdown in orders due to ‘weaker demand for capital-sensitive development companies’, but earnings have held up.

‘While we do not believe the long-term opportunity has materially changed and we continue to believe it is well positioned in a very attractive market, the magnitude of slowdown was unexpected and we stay in regular conversations with management,’ said Gries.