Semiconductor gains have kept BlackRock Greater Europe (BRGE ) ahead of the pack but it is expecting far more to come as the ‘modern era industrial revolution’ gathers pace.

Full-year results from the £541m portfolio of European equities reported net asset value (NAV) total returns of 19.2% in the 12 months to the end of August, beating the 15.8% return from the FTSE World Europe ex UK index in sterling terms.

Semiconductors were the main driver of returns over the year as the hype around artificial intelligence (AI) boosted companies in all parts of the semiconductor production and distribution chain.

BE Semiconductor, which designs and produces ‘mission critical’ equipment for chip manufacturers, was the top performer.

Trust manager Stefan Gries, who now co-manages the portfolio with Alexandra Dangoor after her promotion in September, said BE is a ‘leading provider of packaging solutions…which is set to become an increasing important technology in enabling semiconductor chips to continue getting smaller, yet more powerful and energy-efficient’.

BE’s share price increased 130% over the period thanks to better-than-expected results and the surge in the shares of US chip designer Nvidia, which was at the crest of the wave of AI excitement following the release of ChatGPT.

ASM International, which specialises in depositing a layer of chemicals onto microchips to ensure a uniform surface, and ASML, the world’s leading chip equipment manufacturer, also contributed to gains.

In addition, Gries is banking on investments that indirectly benefit from the ramp-up in AI, including Swedish-listed Atlas Copco, a manufacturer of compression, vacuum solutions, generators, pumps and power tools.

Gries said the vacuum business is a lead supplier of solutions to the semiconductor and electronics manufacturing markets.

‘We believe it is well set to benefit from the expansion of the North American semiconductor manufacturing market, which has become a national priority,’ he said.

‘Currently only 10% of the world’s chips are made in the US. However… we are seeing major investment in semiconductor manufacturing facilities. Atlas is following suit with new facilities in Arizona and Massachusetts to support the burgeoning industry.’

Gries (pictured above) has also added further semiconductor exposure through STMicroelectronics, based in Switzerland. He took a position after the tech sell-off last year and it is now the sixth-largest holding in the fund at 4.1% at the end of September.

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

‘We expect this trend to continue helped by continued innovation in power chips for electric vehicles, sensors for consumer electronics, and connectivity for industrial applications.’

He predicted growth in all these areas as ‘devices need to become smarter as well as more energy efficient’.

The fund’s investment in semiconductors, which made up three of the top 10 positions at the end of September, is a step towards cashing in on what Gries called a corporate ‘revolution’.

He believes that strong corporate balance sheets, which have been deleveraged over the past 15 years, mean ‘we may be at the foothills of an increase in capital expenditure spending resulting in a modern era industrial revolution’.

‘Long-term structural trends and large amounts of stimulus in both Europe and the US can drive demand for years to come, for example in areas such as infrastructure, automation, innovation in medicines, the shift to electric vehicles, digitisation or decarbonisation,’ he said.