BlackRock World Mining Trust: April 2022 update

• Evy Hambro is an industry veteran, clocking up almost three decades of investment experience
• Over 2021, the trust's dividend per share increased by 109.4% compared to 2020
• The trust aims to provide long-term income and capital growth by investing in mining and metal assets worldwide

How it fits in a portfolio

BlackRock World Mining Trust aims to maximise the total return to investors through a combination of capital growth and consistent dividends. The managers achieve this by investing in mining and metal assets across the globe, including some higher risk emerging markets. The managers mainly invest in shares but also look at other assets including mining royalties, bonds and some physical metals to help with diversification.

Investing in the trust could help boost a portfolio’s long-term growth potential but this is a specialist area so adds risk. We think funds and investment trusts investing in a specific sector, should usually only form a small part of a well-diversified investment portfolio. Investors in investment trusts should be aware the trust can trade at a discount or a premium to its net asset value (NAV).

Manager

The trust is co-managed by industry veteran Evy Hambro and Olivia Markham.

Hambro has been in the industry since 1994. He spent time with Mercury Asset Management and Merrill Lynch, before they merged with BlackRock in 2006, and became manager of the trust in September 2000. Some of his other responsibilities include being Head of Global Thematic and Sector Investing and Head of the Natural Resources Equity Team.

Markham became co-manager of the trust in 2015. She’s a member of the Natural Resources team and her coverage spans an array of sectors including precious metals and mining. Markham started her career at BlackRock in 2011, having previously held the position of Head of the European Mining Team at UBS. She also co-manages the BGF World Mining Fund and the Commodities Income Investment Fund.

Both managers can draw upon the vast resources available to them at BlackRock, including access to the broader Natural Resources Team, six of which are dedicated to the mining and gold sectors. They also have the support of wider teams to help with additional research, challenge and analysis, including Asia, UK, Global and Emerging markets.

Process

There are around 300 mining companies in their investable universe that the managers follow closely. Hambro and Markham invest in companies with certain favourable traits including strong cash flows, healthy balance sheets, high-grade reserves and high-quality management teams. They adopt a blended style of top down and bottom-up research, placing more emphasis on bottom-up, individual company analysis.

They monitor industry trends and themes like decarbonisation or transition to electric vehicles (EVs) and feed it directly into the bottom-up portion of their research. They look at companies more likely to benefit from these trends and get stuck into assessing business plans, the strength of management and of the company as a whole. On site meetings are also crucial to the process as it enables them to speak to company employees, not just management, and provides an opportunity to physically assess the sites or mines they invest in.

The trust has around 92% of its assets invested in mining shares and metals including mining group Rio Tinto or precious metals producer First Quantum Minerals. The rest is invested in bonds, debentures (a type of bond or debt instrument), and royalties to provide a higher and more diversified yield.

The trust invests in Vale debentures which offers a return linked to iron ore prices. Over the last year, the managers have upped their stake due to the positive iron ore outlook. The only royalty investment currently in the trust is Oz Minerals. This offers a share in revenues from a specific copper and silver mine in Brazil and has seen strong income returns since investment.

More recently, they’ve increased exposure to some unquoted companies - companies that are not currently listed on the stock market. Ivanhoe Electric and Jetti Resources have been added following some industry tailwinds. Ivanhoe Electric is an exploratory mining system focused on metals that are key to accelerating the energy transition, whereas Jetti Resources have developed a method of enhancing copper extraction which could benefit from the increasing adoption of EVs.

Investors should be aware these assets are higher risk and tend to be more difficult to buy and sell than listed shares. The trust can also borrow money to invest with the intention of increasing returns (known as gearing), but this could magnify losses in a falling market and increases risk.

Culture

BlackRock is the largest asset manager in the world, with around $10 trillion of assets under management globally. The company was founded in 1988 by eight partners including current CEO Larry Fink and is known for both active and passive strategies across the world. Employees at BlackRock are encouraged to hold shares in the company so that they are engaged with helping the company perform well and grow.

Over recent years BlackRock has increased its drive towards stewardship and promoting environmental, social and governance (ESG) based products. BlackRock’s stewardship team look to enhance their transparency by publishing how the company votes in things like shareholder meetings. But they also engage with companies on things like governance or social issues that have a material impact on sustainable, long-term financial performance.

The metals and mining industry is considered by some as a relatively challenging sector from an ESG perspective, so the managers imbue this focus into their investment process. They will not invest in a company with high ESG risks and which they feel have no plan to address these deficiencies. But they do believe it’s an industry that can help accelerate the transition to cleaner and more sustainable practices, so feel simply divesting from these companies isn’t the correct course of action.

Instead, they engage with executives on board issues, ensure sites are following correct labour and human rights standards and push companies on their plans to achieve net zero by 2050.

Over the course of 2021 the managers engaged with three companies in particular - Rio Tinto, Norilsk Nickel and Vale. They receive regular updates regarding concerns over Rio Tinto’s board and keep tabs on Vale’s improving ESG profile following the tragic incident in Brazil in 2015. They sold Norilsk Nickel due to concerns over a number of new environmental issues.

Cost

The trust's annual ongoing charge is 0.95%, which is a decrease from the previous year’s charge of 0.99%. Investors should refer to the latest annual reports and accounts and Key Investor Information for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies. Our platform fee doesn’t apply if held in a Fund and Share Account.

Performance

The trust launched in December 1993 and has provided strong returns for investors. Hambro took the helm in September in 2000 and over his tenure, the trust’s NAV has grown by 1,297%. The share price rose 1,516.80%* over the same period. Past performance isn’t a guide to the future. All investments fall and rise in value so you may get back less than you invest.

The trust has been able to benefit from industry tailwinds over this period, but more so in recent years. For example, an increase in global infrastructure projects means the demand for certain metals the trust invests in, namely copper and nickel which are key to helping the transition to clean and renewable energy, could increase. Technologies including the adoption of EVs and wind turbines, could also bolster production and demand for some mining companies.

2021 was a tale of two halves. In the first half of the year, the trust benefited from the increase in China’s Covid-19 support package which was aimed at supporting property and infrastructure markets. This increase in demand wasn’t sustainable though. In the second half of the year, China enforced restrictions to slow down activity which put pressure on the trusts investments in steel companies and hurt performance.

Over the trust’s most recent financial year (to the end of December 2021) the NAV grew by 20.7% and the share price rose 17.5%. The trust also increased its dividends by 109.4% compared to 2020. One of the main reasons for this income growth was higher-than-expected iron ore prices.

At the time of writing, the trust yields 7.2% but yields are variable and aren’t a reliable indicator of future income.

Annual percentage growth

Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2022.

FIND OUT MORE ABOUT BLACKROCK WORLD MINING TRUST INCLUDING CHARGES

VIEW BLACKROCK WORLD MINING TRUST KEY INFORMATION DOCUMENT

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