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A difficult year for BlackRock World Mining Trust

Dominic Rowles, Investment Analyst, reports on BlackRock World Mining Trust’s annual results for the year to 31 December 2018.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Dominic Rowles, Investment Analyst, reports on BlackRock World Mining Trust’s annual results for the year to 31 December 2018.

  • NAV total return of -11.5% compared with -6.2% for the broader mining sector
  • Share price total return of -10.7%
  • The managers think share prices in the mining industry have plenty of growth potential
  • Increased demand for battery components could boost long-term performance

Investors went into 2018 full of hope for the mining sector. Strong global growth across both developed and emerging markets was expected to increase demand for commodities. This, combined with a lack of investment in new mining projects, meant prices were set to rise across the board.

It didn’t turn out that way though. Donald Trump’s tussle with China stole the headlines and the strength of the US dollar also caused concerns. A stronger dollar means the cost of servicing and repaying debt goes up for mining companies that borrowed in dollars.

Elsewhere in the world, investors had to contend with a power struggle in Germany, budget disputes in Italy and Britain's impending exit from the EU.

The performance of an investment trust that invests in a single sector is always going to be closely tied to that sector and BlackRock World Mining Trust is no exception.

It's managed by industry veteran Evy Hambro with the help of co-manager Olivia Markham. We think it's a reasonable choice for pure exposure to mining companies but performance has been, and is likely to remain, volatile.

Performance review

The trust failed to match the performance of the broader mining sector in 2018. This was mainly because of gearing (borrowing to invest) which magnifies gains when markets rise and increases losses when they fall. Potential investors should read the KID and latest annual report and accounts for details of the risks, gearing policy and charging structure.

The managers think other investors have overlooked the potential of mining companies. They've repaid debts and cut costs, leaving them in a much stronger financial position than they were a few years ago. The managers think share prices could grow strongly when others recognise this.

They're also encouraged by the number of mergers and acquisitions taking place within the trust. Nevsun Resources, Arizona Mining and Avanco Resources were all taken over by other mining companies, which boosted their share prices.

Annual percentage growth
Feb 14 -
Feb 15
Feb 15 -
Feb 16
Feb 16 -
Feb 17
Feb 17 -
Feb 18
Feb 18 -
Feb 19
BlackRock World Mining Trust -33.7% -32.0% 95.8% 13.7% -8.7%

Past performance is not a guide to the future. Source: Lipper IM to 28/02/2019

Dividends

So far the trust's paid three equal dividends of 3.0p per share for the year ended 31 December 2017. A final dividend payment of 9.0p per share will be paid on 10 May 2019. This brings the annual dividend payment to 18.0p per share – that's 15.4% higher than the one paid last year. The trust currently yields 5.0% which is attractive given the low level of interest rates available on cash. Unlike cash though, yields are variable, not guaranteed, and they're not a reliable indicator of future income. The yield is boosted by the managers' use of derivatives, although this adds risk.

Managers' outlook

The managers think share prices in the mining industry have plenty of potential to grow. Even if commodity prices don’t move much higher, a trade agreement between the US and China could be enough to boost investor sentiment.

Technology could also help mining companies do well. The most obvious technological theme is the shift to electric vehicles. It's fuelling demand for battery components like lithium, cobalt and copper. Sustainability is also a growing area, including the recycling of mined commodities. The managers think plenty of opportunities could emerge in these areas over the coming years and long-term investors will be rewarded, although there are no guarantees.

Find out more about the trust including charges

Key information document

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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