BlackRock World Mining (BRWM) is a specialist trust offering exposure to mining and metals companies globally. Over the past 12 months or so a number of important themes (see the Portfolio section) have coalesced to provide a hefty tailwind to the sector. Despite short term volatility recently, profitability, dividends and sentiment towards mining companies and BRWM have all improved. When we met up with the managers recently, they were bullish on these tailwinds continuing to develop, and view the outlook positively.
Strong commodity prices have led to record dividend distributions from the large, diversified miners which make up a large proportion of BRWM’s portfolio. As we discuss in the Dividend section, BRWM’s income for the first half of the current financial year was more than double the income it received over the same period last year.
Investors wanting to get exposure to the mining sector can choose to invest directly, or through a fund like BRWM. As well as using the advantages of the closed end structure to enhance returns for shareholders, the managers aim to offer a more diversified and significantly more nimble ‘virtual’ mining company, with flexibility to shift allocations between commodities depending on their view at the time. For example, over the three years to 31/08/2021 BRWM has outperformed the average of the London listed mining mega-caps (NAV total returns of 20.4% p.a. vs 12.2% respectively) but also had a smoother return trajectory (volatility of 23.5% vs average of 24.5%).
BRWM’s discount has widened of late, and it now trades on a discount of 7%. At times recently it has achieved a premium. We note that gearing remains in line with the long-term average at 11.8% (31/08/2021), but BRWM has higher gearing into equities than historically, given the reduction in fixed income securities in the portfolio, as we discuss in the Gearing section.
The convergence of the powerful themes that underpin BRWM resulted in the shares attracting a premium rating for much of the first half of the year. Since then the discount has widened out again, to the current level of 7%, which we see as a potential opportunity. With the run-up to COP26 now approaching, investor attention will be focussing on de-carbonising the global economy – a theme that sits firmly behind BRWM as an investment proposition.
We share the enthusiasm of the managers, who are bullish on medium to long term prospects despite the short-term volatility witnessed in markets lately. With this upside potential, the team believe that the downside case is significantly different to prior periods – with strong balance sheets and lower valuations compared to most other global equity sectors.
Revenues for the first half of 2021 were up 111% over the same period last year. Given the board looks to pay out substantially all of the trust’s net income over a year, shareholders might reasonably expect an increased total dividend for the 2021/22 financial year. Adding together last year’s H2 income (11.6p per share) to the income earnt in H1 this year (18.6p per share) gives a guesstimated full year dividend in the order of 30p, which would translate into a prospective dividend yield of 5.4%.
|Large liquid trust in a specialist sector, using the structure's flexibility to the full
||Single sector portfolio means NAV is likely to be impacted by changes in global economic growth
|Prospects for attractive dividend yield
||Dividend yield (both underlying, and that of the trust) is not progressive
|Structural tailwinds to the investment case look entrenched
||Discount is not wide in historic context, presenting risks of it widening should sentiment deteriorate