Why consider BRGE?

While performance in recent years has been tough as growth has significantly underperformed value in European markets, and there have been some stock-specific disappointments, the trust has outperformed its broad Europe ex-UK reference index and ranks highly against most of its peers in the AIC Europe sector over the last decade. Gries and Dangoor follow a well-defined investment process, seeking companies with a unique product or service that generate high and predictable returns on capital, with options to deploy cash in profitable growth opportunities, and a management team with a track record of value creation.

The managers form their own opinions about the macroeconomic background based on fundamental insights rather than following the consensus narrative. They have an unconstrained approach to portfolio construction, which meant that at the end of July 2025 there were four of 11 market sectors that had a zero weighting in the portfolio, which collectively made up around 18% of the reference index. The largest active positions were overweights in industrials (+14.9pp) and consumer discretionary (+10.8pp) and an underweight in financials (-13.3pp).

This year, Europe has not been immune to stock market volatility. However, the region may be worthy of consideration as it is home to a good selection of attractively valued, leading global businesses that should be well positioned to navigate an uncertain economic backdrop.

BRGE: Capital growth from a concentrated European equity fund

Gries and Dangoor have constructed a portfolio of what they consider to be high-return, superior growth businesses that can be held for the long term. Growth themes and examples of investee companies represented in the portfolio include energy transmission (Belimo and Schneider Electric); pricing power (Ferrari, Hermès International and Richemont); and structural growth (Adyen, BE Semiconductor Industries and ASM International).

The trust’s relative performance was very strong until the end of 2021, but subsequently struggled during a period of significant growth stock multiple compression. More recently, there have been a couple of specific issues, namely a holding in Novo Nordisk and BRGE’s semiconductor exposure (see the performance section for more information).

Perspectives from BRGE’s manager

While Gries and Dangoor select stocks based on individual company fundamentals, they also consider the macroeconomic environment. Their opinions about the current investment backdrop are gleaned from the bottom-up observations of the well-resourced BlackRock European equity team, which covers all 11 sectors of the market. Dangoor highlights three areas that she believes are particularly relevant.

• The strength of the US economy. The US economy is growing faster than the European economy as the environment is more business friendly and there is a greater emphasis on shareholder value creation. Italian economist Mario Draghi has expressed the need to reassess European investment, noting that while the US and Europe have both invested heavily in the auto industry, the US has shifted R&D spending into higher-growth areas within technology, while Europe has lagged and remains heavily focused on automotives. The US Federal Reserve moved from an easing to a stable interest-rate policy at the end of last year. However, recent comments indicate a shifting balance of risks, which could lead to a potential policy change. While there have been pockets of US economic weakness this year, so far, the US economy looks relatively stable with generally strong balance sheets for both corporates and consumers.
• A changing Europe. Although there are some bright spots, a broad improvement in European economic growth seems unlikely as there are no structural changes; for example, when an industry looks to reform, there are rumours of higher taxes. An ongoing problem is some cash-strapped governments in Europe, such as France and Italy, although some European economies, including Spain, are very strong. The German government has some flexibility given its €1tn infrastructure and defence spending package. Dangoor comments that although interest rates have come down, there need to be more changes by European governments to enable a widespread improvement in the region’s economy.
• Defence growth tailwinds. The manager explains that there is a real change in attitude towards defence spending, with governments willing to allocate a higher percentage of their fiscal budgets. Currently, spending on defence is split broadly equally between equipment, personnel and other, including infrastructure, with anticipated increases in equipment outlays. Within equipment spending, last year one-third went to Europe, but that share is likely to increase, which should benefit European defence companies.

Dangoor moves on to two other pertinent topics: US tariffs and corporate earnings. She notes there has been mixed information around tariffs. Over last two quarters, companies have been talking about raising prices, but have generally been waiting for the exact level of tariffs to be announced, although some luxury goods businesses have already increased their prices. The manager suggests that companies are likely to spread tariff costs across their regional operations, and share some of the burden with suppliers, which can reduce the final impact. She highlights specific names in BRGE’s portfolio, such as the luxury goods companies and Ferrari, that have high gross margins, which can soften the negative impact of tariffs.

Reports from the Q225 earnings season show that business trends were not dissimilar to those reported in the prior quarter. There have been forecast upgrades in the banking sector and strong results from defence companies and data centre-exposed industrial businesses. Cyclical areas of the economy, such as construction, are faring less well as volumes are weak. The semiconductor industry is experiencing a recovery, having worked through a period of inventory destocking, and within this, growth within AI-related businesses is very strong, while smartphone demand is weak. Consumer businesses are experiencing volume pressure; L’Oréal grew volumes by 1.5%, versus 4–5% historically, but is managing to outperform a tough category, helped by an improvement in the US and Chinese beauty markets. On the discretionary side, there are very much ‘have and have-nots’, as Hermès International generated 9% organic growth, while Gucci revenues declined by 25%, and LVMH’s fashion and leather goods demand was weaker than during COVID or the global financial crisis. Dangoor explains that some soft luxury goods companies have priced out a lot of their aspirational customers and are adjusting their pricing pyramids, which may take time.

Current portfolio positioning

At the end of July 2025, BRGE’s top 10 holdings made up 50.4% of the portfolio, which was a modestly lower concentration compared with 51.7% 12 months earlier; six positions were common to both periods.

The managers’ unconstrained approach is shown by the fact that BRGE has no exposure to some of the 11 market sectors. There were four areas at the end of July 2025 where companies did not meet the managers’ investment criteria: consumer staples, utilities, energy and telecommunications, which made up around 18% of the reference index. In the 12 months to the end of July 2025, there were some notable changes in the portfolio, namely a 10.0pp increase in industrials, which was more than offset by a combined 6.7pp lower healthcare weighting and a 5.2pp lower allocation to technology. Looking at BRGE’s active portfolio bets, where the trust does have exposure, it is underweight financials (-13.3pp) with double-digit overweight positions in industrials (+14.9pp) and consumer discretionary (+10.8pp).

Although BRGE’s sector and geographic weightings are a result of bottom-up stock selection, it is nevertheless interesting to look at the way the portfolio is broken down. In the 12 months to the end of July 2025, there was a material increase in exposure to Germany (+11.5pp), which was partly offset by a lower weighting in the Netherlands (-8.1pp). In terms of active weights, despite the increase, the trust remains underweight Germany (-6.1pp). There are allocations to two non-index countries, the UK (6.9pp, RELX) and the US (4.2pp, Linde). RELX is an information-based analytics and decision tools company listed in London as well as in the Netherlands and New York. Industrial gas company Linde took over US-based Praxair in 2018; the company now has a single listing in New York.

Recent portfolio activity

Dangoor discusses some recent portfolio transactions, noting that the one-year rolling turnover to the end of June 2025 of 33.4% was higher than in the prior two years (23.6% in 2024 and 21.3% in 2023), reflecting the severe stock market rotation. Starting with the purchases, Richemont’s jewellery brands include Cartier and Van Cleef & Arpels. Unlike for soft luxury goods, jewellery prices did not rise as significantly during and after COVID, so there is room now for higher pricing. The company’s brands appeal to high-end consumers, who tend to be less price sensitive. SAP is a widely known provider of enterprise resource planning software. The company had a difficult transition to the cloud, but is now gaining momentum. SAP’s product cycle is very strong, and the manager expects an acceleration in revenue growth and margin expansion. There was a change in CFO in 2023, and he has since made the company’s accounts more transparent. As discussed earlier in the report, defence stocks have structural growth opportunities, so Kongsberg Gruppen and Thales have been added to the portfolio. Dangoor believes that Kongsberg Gruppen has double-digit growth revenue potential as air defence missiles are likely to get a higher share of government defence budgets. Thales is viewed as a stable defence company. Its air and cyber defence operations are likely to be prioritised, leading to potential double-digit revenue growth, despite the constraints on the French defence budget. A new position in MTU Aero Engines, along with the existing holding in Safran, gives BRGE exposure to the narrow body aircraft engine market, where there is significant aftermarket growth potential. Both MTU and Safran are launching new engines that have 20% improvements in fuel efficiency, are less noisy and generate less CO₂ emissions.

Sales include STMicroelectronics (weak demand into a stuffed inventory channel brought management quality into question); Alten (a consultant with struggling end markets); Sika (an absence of visible benefits from its acquisition of MBCC); and Hexagon (which, along with Sika, has a lack of growth and an unattractive valuation).

Performance: Outperformance over the long term

There are currently five funds in the AIC Europe sector following Fidelity European Trust’s combination with Henderson European Trust. BRGE is the second-largest fund within the peer group. Its NAV total return ranks second over the last decade, but its relative returns have slipped since our last update in January 2025 and are now below average over the other periods shown in Exhibit 7 (although broadly in line over the last three years). The trust’s performance was particularly negatively affected by the de-rating of growth stocks in a rising interest rate environment between Q421 and Q222. BRGE’s discount is currently below the peer group average. Its ongoing charge is above average and the trust is currently ungeared. Given the primary focus on capital growth, it is unsurprising that BRGE’s dividend yield is below the mean.

BRGE’s relative performance is shown in Exhibit 10. The trust retains its record of outperformance versus the reference index over the last decade but, as mentioned earlier, has been hurt by the devaluation of growth stocks. There have also been some disappointing share price moves from investee companies. Over the 12 months to the end of June 2025, the largest positive contributors to BRGE’s relative performance were Belimo (+1.6pp), Safran (+1.3pp) and ChemoMetec and AIB (both +1.1pp). The largest detractors were Novo Nordisk (-3.1pp), ASML (-1.7pp) and ASM International and BE Semiconductor Industries (both -1.6pp).

Novo Nordisk’s shares had performed very well due to its GLP-1 weight-loss drugs. In December 2024, the company released Phase III trial results of a next-generation weight-loss drug. Consensus was for 25% weight loss, and it came in at 23%; however, the trial turned out to be of a flexible design, which produced unexpected results that were not well received by investors. This year has seen a lack of an acceleration in Novo’s weight-loss drug prescription data, particularly for Wegovy in the United States, as cheaper compound weight-loss products have remained on the market for longer than expected. Recently, Novo announced a new CEO, who is an internal rather than an external candidate, selected after just a two-month search. On the same day, the company issued another profit warning.

The position in ASML was sold as two out of three of its key customers are struggling (Intel and Samsung Electronics). ASML’s third customer is TSMC, which is in a very strong position, so is not being forced to innovate. The company is essentially the only buyer of ASML’s lithography machines. Intel has a new management team, and its strategy is up for debate and its growth rate is likely to decline.

Upside/downside capture

Over the last decade, BRGE’s cumulative upside capture rate was 111%, illustrating that the trust is likely to outperform the market by a little more than 10% in months when European ex-UK shares are rising. The downside capture rate of 114% suggests that BRGE tends to underperform to a slightly higher degree in months of European ex-UK share price weakness.

Dividends: Progressive policy since launch

BRGE has consistently grown its annual dividend since the trust was launched in September 2004. Distributions are made twice a year in May and December, and typically most of the income is generated in the second half of the financial year. So far in FY25, an interim dividend of 1.75p per share has been paid, which is in line with the FY24 interim payment. At the end of H125, BRGE had c £6.3m of revenue reserves, which is equivalent to around c 0.9x the last annual dividend.

Valuation: Discount remains range-bound

Over the last three years, BRGE has traded in an absolute range of a 1.7% to 9.0% share price discount to NAV, but generally in a 4% to 8% range. Looking at a longer-term chart, the trust regularly traded at a premium from the beginning of 2021 through to the end of Q122, which was during a period of strong relative performance.

BRGE’s 3.7% discount compares to the average discounts of 6.1%, 5.7%, 3.7% and 4.0% over the last one, three, five and 10 years respectively. Renewed annually, the trust’s board has the authority to allot up to 10% or repurchase up to 14.99% of the trust’s shares. There are also discretionary semi-annual tender offers for up to 20% of shares outstanding, although none has been undertaken since November 2018.

Fund profile: Broad European equity exposure

BRGE was launched in September 2004 and is listed on the Main Market of the London Stock Exchange. On 21 December 2022, the board announced that Stefan Gries, who had been co-manager since June 2017, would become BRGE’s sole manager with immediate effect. Sam Vecht, the trust’s former co-manager, stepped down; he had been responsible for the trust’s modest emerging Europe weighting. On 28 September 2023, Alexandra Dangoor was appointed as BRGE’s co-manager; she had worked closely with Gries for the prior seven years.

The managers aim to generate long-term capital growth from a focused portfolio of European equities, across the market cap spectrum, although most of the fund will be invested in companies with a market cap above €5bn. BRGE’s performance is measured against a broad Europe ex-UK index. The fund typically has 30–45 high-conviction positions and there are no constraints on sector exposure. Up to 25% of the portfolio may be held in emerging European markets (currently 0%), while up to 5% may be held in unquoted securities (currently 0%); together these two exposures may not exceed 25% of the fund. Gries and Dangoor may invest in debt securities (up to 20% of the portfolio – none currently held) and derivatives are permitted for efficient portfolio management. Maximum gearing of 15% of NAV at the time of drawdown is permitted.

Investment process: Fundamental stock selection

BRGE’s stocks are selected on a bottom-up basis. Gries and Dangoor can draw on the broad resources of BlackRock’s Fundamental Equity division; the European Equity team alone has 20 investors. The first step of the investment process is idea generation, which is important in ensuring there is a continuous flow of new ideas entering the proprietary research process. A research pipeline is in place to ensure that team resources are used efficiently and to take advantage of the most promising investment opportunities.

Analysts undertake thorough industry and company analysis, looking at a firm’s market dynamics, revenue drivers, financial statements, valuations and risks to the investment thesis. It is important to understand the factors that influence a company’s share price and what the stock market is anticipating or may be missing. A proprietary research template is used to provide a consistent approach and researched stocks are assigned a rating between 1 (strong buy) and 5 (strong sell), while constructive debate between team members is actively encouraged.

There are four primary investment criteria when assessing a potential addition to the fund: a unique aspect – such as a product, brand or contract structure – which allows sustainable returns; options to deploy cash in areas of high and sustainable returns; a high and predictable return on capital and strong free cash flow conversion; and a quality management team with a clearly defined strategy and a strong track record of value creation.

BRGE’s portfolio currently has 32 holdings, selected from an investible universe of more than 2,000 companies. Portfolio turnover in FY24 was c 24%, which equates to a holding period of around four years. Stocks may be sold if there is a fundamental change in the investment case that will negatively affect a company’s earnings and cash flow, if it has reached its estimated valuation target, or if a better investment opportunity is identified. While BRGE’s portfolio is concentrated, the managers and their team are risk aware and work closely with BlackRock’s independent Risk and Quantitative Analysis group to ensure the trust’s portfolio risk is closely monitored and understood.

BRGE’s approach to ESG

Gries and Dangoor use ESG information when conducting research and due diligence on new investments, and also when monitoring investments in the portfolio, believing that this can help enhance risk-adjusted returns. They employ both quantitative and qualitative assessments, focusing on areas including environmental risks, corporate structures and capital allocation. Given its size, BlackRock has unparalleled access to company management teams, and its managers seek to understand how firms approach ESG risks and opportunities and what potential impact these may have on their financial returns; they can encourage change when required. Gries and Dangoor believe that a company’s ability to manage ESG matters demonstrates strong leadership and good governance that is essential to sustainable growth. The criteria applied for
BRGE’s stock selection mean the portfolio is made up of businesses that score well from an ESG perspective, and the managers highlight the importance of a strong corporate culture within investee companies in terms of creating value for shareholders.

Gearing

At the end of H125, BRGE had an available overdraft facility of the lower of £75m or 15% of NAV, which is the maximum permitted at the time of drawdown. Net gearing is typically in a range of 5–8%. The managers do not try to time the market; the trust’s level of gearing is driven by the opportunities available for either current or new holdings.

Fees and charges

BlackRock is paid 0.85% per year of NAV on assets up to £350m (based on the NAV at the end of each month) and 0.75% per year of NAV on assets above this level. It is allocated 80:20 between the trust’s capital and revenue accounts and no performance fee is payable. In FY24, ongoing charges were 0.95%, which was 3bp lower than 0.98% in FY23.

Capital structure

BRGE is a conventional investment trust, with one class of share. There are currently 94.8m ordinary shares in issue, with a further 23.1m held in treasury. Over the last 12 months the trust had an average daily trading volume of c 157k shares.

The board

On 12 March 2025, the board announced the appointment of Andrew Impey as an independent non-executive director with effect from 28 April 2025. He has more than 30 years of fund management and more than 35 years of investment trust experience. Impey is the non-executive chair of Pacific Assets Trust, a charity trustee, sits on a series of investment committees and is a director of the HMS Victory Preservation Society.