The billion-pound commodities investment trust had a strong 2020 and is well-placed to continue to deliver excellent returns.
BlackRock World Mining (LON:BRWM) bounced back strongly from the sell-off last March and finished the calendar year with a share price total return of close to 50%. The fund is now trading close to NAV, yet it remains an attractive option.
Last year’s strong performance was due to China’s rapid recovery from the impact of Covid-19, while the financially strong position of the mining stocks in the portfolio helped to limit the downside risk during the initial market sell-off. If the global economy continues to strengthen, the fund should be able to deliver considerable further upside.
BRWM offers a diversified investment in mining and metal assets worldwide including related royalties and has a policy of fully distributing all of the income in any one year. Revenue per share was nine percent lower in 2020 and this resulted in a reduced dividend, yet the 3.5% yield is still competitive and should pick up as the underling holdings increase their pay-outs.
Managers Evy Hambro and Olivia Markham believe that the outlook for 2021 is strong given the prospects for metal demand and the constraints on supply. The latter is partly due to the closures of mines in response to Covid-19, which ensured that inventories did not build up when economies were in lockdown.
On the demand side, there should be significant benefit from the synchronised increase in global infrastructure spending, with the sector having a key role to play in the move to build back greener. Raw materials like copper, nickel, lithium and cobalt are essential components of the lower carbon technologies that will support the shift away from fossil fuels.
Commodity prices would also benefit from a rise in inflation, although it is a mixed blessing as the higher oil price would add to the cost of extraction and refining. Increased capital expenditure after years of cut backs could be a further burden.
Portfolio and premium rating
At the end of January 39% of the fund was invested in diversified miners, with the other main weightings being a 25% exposure to gold and 18% to copper. The largest holdings included well-known companies such as BHP, Anglo American, Rio Tinto, Newport Mining, Barrick Gold and Glencore.
Over the last ten years BRWM has traded at an average discount of 12%, but the strong recent performance has brought the fund close to NAV. If approved at the AGM in April, the company will be given the power to issue shares from treasury to manage its premium rating.
The mining sector has come back strongly since the sell-off last March, but if the global economy continues to recover and governments fulfil their obligations to build back greener, there should be much further to go. BlackRock World Mining offers a liquid and diversified exposure to the stocks that are at the heart of the process and has the potential to deliver considerable capital growth and a rising level of income.