2020 has marked a return to form for BlackRock World Mining Trust (BRWM) in absolute terms, but also relative to the mining sector. The team’s long-running investment thesis – of investing in companies which show capital discipline and a willingness to reward shareholders with dividends – is paying off. The team believe miners stand to continue to benefit from stimulus measures amid calls to “build back better”, and also from the energy transition.
Relative to the broader equity market, BRWM’s Performance this year has been strong as a result. Returns have been additionally enhanced by the team going ‘all in’ on gold, a call they made following significant government stimulus in response to the COVID-19 pandemic. Gold now represents c. 35% of NAV – the trust’s largest commodity exposure. As well as having been a strong contributor to returns this year, the managers believe the unique investment properties of gold miners put them in a very good position despite the economic circumstances which the world now finds itself in (as discussed under Portfolio).
BRWM is a specialist trust which aims to maximise total real returns. Of ever increasing interest – especially in an environment where income sources elsewhere are under pressure – is the Dividend component. The trust aims to have a diversified source of revenues (including illiquid debentures and unlisted royalty investments), which helps BRWM achieve its objective of delivering a yield premium to the market.
Despite the strong performance in 2020, the discount has only slightly narrowed, though the discount did frequently exceed 15% in 2019. Over the past three years, the average discount has been 12.9%, compared to the current level of 11.4%.
In our view BRWM offers an attractive package. The portfolio appears to be in a strong position in the current environment, with lowly geared underlying companies and supportive commodity prices. Whilst certainly a lasting recession would not be good for BRWM, over the longer term there appear to be a number of tailwinds which will benefit the trust.
The gold exposure has been an excellent contributor to short-term returns, but also illustrates the advantage BRWM has relative to the large diversified miners. BRWM is able to be significantly more flexible and nimble regarding allocations to specific commodities or metals, and this has paid off strongly over the course of this year, with BRWM outperforming the other UK-listed diversified mining companies on a total return basis.
BRWM’s income attractions are in our view likely to become more apparent as time goes on. The trust does not have a progressive dividend policy, but the board commits to pay out substantially all of the trust’s income in dividends. Based on published information, the dividend might be expected to be 17.7p, representing a 20% reduction from 2019 but still representing a yield of 4.2%. Relative to other equity income sources, BRWM’s prospective dividend yield is attractive.
We believe that an improvement in sentiment towards the sector and trust, as a result of structural tailwinds and obvious income attractions, could result in the discount narrowing further. In absolute terms 11.4% remains wide, and could represent an attractive entry point.
|Large liquid trust in a specialist sector, using the structure's flexibility to the full||Concentrated portfolio and volatile NAV, likely to be impacted strongly by changes in global economic growth|
|Prospects for attractive dividend yield||Dividend yield (both underlying, and that of the trust) is not progressive|
|Discount is wide in absolute terms||Gearing can amplify returns on the downside|