Fund Profile

BlackRock Energy and Resources Income

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by BlackRock Energy and Resources Income. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

BlackRock Energy and Resources Income Trust (BERI) aims to provide high income through investment in the energy and resources sectors globally. From first principles, these sectors are traditionally good places from which to derive income: typically they exhibit strong free cash flow and, having largely de-geared since 2015, are in relatively strong financial shape.

As we discuss in the Dividend section, dividends everywhere are under question. The BERI managers are optimistic that their sectors are in a comparatively good position to ride out the COVID-19 induced economic slowdown. BERI’s board has reaffirmed its 4p dividend target (yielding 7% on a historic basis), supported by reserves or capital.

Over the past year there have been some small but significant changes to BERI. Energy transition stocks have been formally identified within the mandate. From 1 June 2020, BERI is working towards a neutral sector weight of 40%:30%:30% between mining, energy and energy transition stocks. As the pace and shape of energy transition evolves, the managers anticipate a higher weighting towards this sector over time.

Secondly, the board has emphasised to BlackRock that providing a covered dividend is of secondary importance to delivering strong total returns. Finally, Mark Hume – who has a specialism in energy stocks – has been promoted to co-manager.

A definitive shift towards the inclusion of energy transition stocks is already under way. This is likely to involve an increasing tilt towards structural growth, which may come at the expense of income in the short run. The board is focussing on total returns as an objective, and is looking to reserves to support the dividend as BERI makes its own transition.

Kepler View

BERI has historically struggled relative to the reference index. Perhaps this is why the board has decided to ‘free’ the managers from the trust’s high-income mandate, by not asking them to deliver a covered dividend in the future. In addition to reaffirming the dividend target, as we illustrate in the Dividend section, the board has indicated that it has substantial distributable reserves to support the dividend should it see fit.

In this context, with a historic dividend yield of 7%, BERI offers a yield considerably higher than most other areas of the market. Should the dividend level be maintained – or at least continue to offer a significant yield premium to the market – the discount of 15.3%, relative to other equity income funds that trade on much narrower discounts (and even premiums), looks anomalous.

Another potential catalyst for a re-rating could come from ESG investors. Although BERI is unlikely to fit within a negatively screened ESG mandate, the realigned portfolio does fit within a more real-world and constructive view of ESG investing. The managers clearly recognise the opportunity in energy transition companies, but they also remain engaged with those that will need to change their business models if the world is to successfully evolve to a low carbon economy.

The above notwithstanding, if the board were to start buying shares back, the discount could narrow relatively quickly. In this context, the current discount of 15.3% could represent an attractive entry point.

bull bear
Yield premium to market (historic yield of 7%), with dividend seemingly supported through capital payments Specialist mandate means less diversified than generalist equity income funds / trusts
Discount of 15.3% looks anomalous, based on yield and changes made to mandate Dividends paid from capital can erode trust's capital base, which is already on the small side
Less emphasis on providing a covered dividend, should help total returns improve going forward Gearing can exacerbate downside
Continue to Portfolio

Fund History

24 Nov 2021 Fund Analysis
Pragmatic active management has meant BERI’s managers have navigated recent months well…
24 Nov 2021 Holding back the tears
While the final text of COP26 fell short of what many had hoped for, the writing is on the wall for fossil fuels and, from an investment perspective, the age of sustainability has only just begun…
27 Oct 2021 Gone with the wind
One of our analysts looks at the implications of the shocking rise in energy prices and the opportunities it highlights for investment trusts...
06 Oct 2021 Slides and Audio: BlackRock Energy and Resources Income
Download the presentation and listen to the audio from our 'Now that's what I call a discount!' Autumn conference on 30 September...
23 Sep 2021 Now that's what I call a discount 2021!
For the second year running we examine trusts on discounts which, in our view, don't make sense...
13 Sep 2021 The European Green deal: when macroeconomics matter
Macroeconomic factors do not normally play a significant role for stock pickers. However, says Stefan Gries, Co-Portfolio Manager on the BlackRock Greater Europe Investment Trust plc, the European Green Deal could be an exception, creating real opportunities across European markets.
09 Aug 2021 The journey to net zero
The world’s energy mix is changing, but the transition to renewables is a process that demands the coordination of all stakeholders. Investing through an evolution such as this requires a nuanced approach, says Mark Hume, Co-Portfolio Manager of the BlackRock Energy and Resources Income Trust plc...
10 Jun 2021 Green is good!
2021 will see billions dedicated to sustainable initiatives, which brings with it a host of possible investment opportunities...
27 Apr 2021 Fund Analysis
A well-timed shift of emphasis in the mandate has revived BERI’s fortunes…
24 Mar 2021 Shoot to Thrill: ISA targets for long term growth
We all intend to invest for the long-term but can often be distracted by the news...
17 Mar 2021 After the storm
We look at the outlook for dividends in the UK commercial property sector and consider how the portfolio of the future will look after COVID…
12 Feb 2021 Results analysis: BlackRock Energy and Resources Income
With a strong track record behind it, BERI offers investors the chance to capitalize on the shift to a low carbon world, while offering high levels of income…
14 Jan 2021 Get 'em while they're hot!
We review the widest discounts in the investment trust universe and look at our selection of attractively cheap trusts…
16 Dec 2020 My haven’t you grown!
How sustainability has gone from zero to hero in 2020…
26 Nov 2020 Can the energy and resources sectors protect against inflation?
Tom Holl, Co-Portoflio Manager of BlackRock Energy and Resources Income Trust plc explores the hedging potential in commodities and natural resources...
26 Nov 2020 Fund Analysis
The shift towards the energy transition is seemingly already having a positive impact on BERI’s returns…
15 Oct 2020 Nice guys finish first
ESG has moved from hippy pipe-dream to corporate mainstream, but what is it really and where do we see opportunities?
15 Jul 2020 Why stagflation is likely and how to protect your portfolio from it
Our analysis suggests a combination of cost-push inflation and economic hardship could lead to a short, but unpleasant, period of stagflation...
09 Jul 2020 The next big thing: two mega-trends that everyone should own
Tech has beaten almost everything hands down – but nothing lasts forever. Where else should investors be looking for secular growth themes?
07 Jul 2020 Fund Analysis
Transformational changes, together with a reaffirmed dividend target, mean BERI’s discount could be an attractive entry point…
05 Jun 2020 Deep impact
Audio and presentations from our conference this week, where fifteen of the world's best fund managers described a profoundly altered investment landscape...
13 May 2020 Braving the new world
Join 15 of the UK's best known fund managers at the Kepler Trust Intelligence Virtual Summit to find out how they see the world after the pandemic...
01 Oct 2019 Natural resources - time for another look?
The natural resources sector is changing: investors may want to rethink their long-held views..
12 Jun 2019 Fund Analysis
A conviction-led approach to delivering a high income from the global mining and energy sectors...
06 Feb 2019 Income for the long haul
With 'ISA season' looming we identify investment trusts which offer long-term, dependable income streams for yield-hungry investors...
01 Feb 2019 Fund Analysis
A conviction-led approach to delivering a high income from the global mining and energy sectors...
05 Dec 2018 Surf's up
As rough markets drive share price volatility up, we use a proprietary statistical technique to highlight trusts which have rarely looked cheaper...
15 Aug 2018 Fund Analysis
A high conviction approach aiming for a strong income from the global mining and energy sectors, with a good track record of outperformance – particularly in flat or falling markets...
02 Feb 2018 Fund Analysis
A high conviction approach aiming for a high income from the global mining and energy sectors with a good track record of outperformance – particularly in flat or falling markets...
09 Jan 2018 The Income Diversifiers Conference
CPD certificate, speaker presentations and slides...
19 Dec 2017 Fund Analysis
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06 Dec 2017 Fund Analysis
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29 Nov 2017 Fund Analysis
A portfolio of UK equities with a focus on companies that can generate attractive income and capital growth.
25 Oct 2017 Fund Analysis
A UK small-cap trust that can profit in both rising and falling markets...
29 Jun 2017 Fund Analysis
21 May 2017 Brave new world
We ask the top managers in each sector, region and asset class where they see the opportunities in the months ahead...
View all

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