Fund Profile

BlackRock Energy and Resources Income 06 July 2022

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
BERI appears to be riding the crest of a wave…
Overview

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.

Kepler View

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.

Bull

  • 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

Bear

  • 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
Continue to Portfolio

Fund History

06 Jul 2022 Fund Analysis
BERI appears to be riding the crest of a wave…
29 Jun 2022 Reality check
Advocates of a green revolution have had a tough ride in recent months as 'dirty’ energy stocks have rebounded sharply, underlining the need for an environmentally conscious approach which follows both the head and the heart…
17 Jun 2022 The three key changes in the energy sector for the year ahead
The way countries source energy is under scrutiny as the Ukraine crisis has exposed the vulnerability of supply. Mark Hume, Co-Manager of the BlackRock Energy and Resources Income Trust plc, explains how the invasion of Ukraine is changing the energy landscape...
11 May 2022 Catch a tiger by the tail
As inflation bites harder than it has for decades, we consider the best ways for investors to hang on to their capital...
17 Mar 2022 It's the end of the world as we know it
We examine five potential themes for investors seeking long-term returns in a troubled and uncertain world...
07 Feb 2022 Results analysis: BlackRock Energy & Resources Income
BERI has had a strong year thanks to the managers’ flexible approach towards navigating the path to net zero…
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...
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...
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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