BlackRock Energy and Resources Income 06 July 2022
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.
The aim of BlackRock Energy and Resources Income (BERI) is to achieve an annual dividend target and, over the long-term, capital growth by investing primarily in securities of companies operating in the mining and energy sectors, including the energy transition.
BlackRock Energy and Resources Income
Tom Holl; Mark Hume;
Association of Investment Companies (AIC) Sector
Commodities & Natural Resources
12 Month Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
BlackRock Energy and Resources Income (BERI) has seen an undeniable improvement in its prospects since the shift in emphasis in its strategy in June 2020, explicitly positioning the trust towards the decarbonisation of the global economy. However, over the last year or so, performance has been driven by its significant exposure to traditional energy companies which have been reporting bumper profits. Whilst not exactly what one might have expected when the board evolved the strategy, as we discuss in the Portfolio section, it is aligned entirely with the management team’s practical and real-world understanding of the transition the global economy needs to take towards net zero.
As the above suggests, allocations between mining, traditional energy and energy transition stocks are dynamic. Yet, now that the managers have a mandate which offers potential exposure to a wider range of sub-sectors and niches than it had previously, we think this offers the potential for them to generate more alpha over the long-term, as well as the NAV to have a less volatile trajectory than it has had in the past.
As part of the strategy change, the board freed the managers from income generation constraints, asking them instead to invest for the highest total returns. As such, it was expected that over time income might decline and that the dividend would be supported by the trust’s ample distributable reserves (including capital). With a portfolio skewed currently towards traditional energy stocks, the dividend is once again covered and the board has guided for a significant increase in the target for the current financial year. If the target of 4.4p is achieved, the shares yield 4.2% at the current price.
BlackRock CEO Larry Fink describes the decarbonizing of the global economy as “the greatest investment opportunity of our lifetime”. The path to net zero will not be a straight one, and in BERI investors have a team of specialists with the mandate, resources and potential to add significant alpha over the journey. The benefits of their active approach have been seen already (see Performance section), and so BERI remains relevant to all investors today. Contrasting with funds more exposed to ‘sustainability’, BERI’s managers offer a more pragmatic and rounded exposure, and one that looks increasingly strong – in both capital returns and the dividend which has been raised for the first time in many years.
The changes to BERI’s strategy in June 2020 presaged an improvement to the prospects of the trust, with strong performance leading to a premium rating, share issuance and a lower OCF. Whilst BERI is undoubtedly riding a crest of a wave, it is worth bearing in mind that discount risk, particularly for trusts which have a relatively narrow theme or exposure, can be high. Indeed, BERI’s own history proves this point.
The prospective dividend yield of 4.2% is attractive, supported by revenue and capital reserves. We think the managers’ specialist areas of focus put them in a good position to be able to add value for investors, with a tailwind from a theme that is set to run for decades.
- Attractive prospective dividend yield of 4.2%, supported through significant distributable reserves
- Active management has helped trust to deliver strong absolute and relative total returns since evolution of strategy
- OCF is starting to reduce, thanks to growth of trust
- Specialist mandate means BERI is less diversified than generalist equity income funds/trusts
- Discount could widen out further if sentiment towards mining or energy sector fades
- Gearing can exacerbate downside