Helal Miah
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Updated 10 Feb 2023
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This is a non-independent marketing communication commissioned by BlackRock. 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.

  • BlackRock Energy and Resources Income (BERI) in the year to 30/11/2022 delivered NAV total returns of 44.5% while the share price total return was 44.8%.
  • The total dividends paid during the year rose to 4.4p per share, up by 7.3%. Dividends were covered by revenue earnings of 4.99p per share, which themselves were up by 0.6% over the year, meanwhile the discount narrowed marginally to 6.8%.
  • When combined with the strong prior year performance to 30/11/2021, BERI’s share price has increased by 105.1% over the last two financial years.
  • The geopolitical backdrop and demand supply factors were key drivers for both energy and commodity prices during much of 2022. The manager’s ability to shift allocations between traditional energy, mining and energy transition themes also contributed to performance.
  • The traditional energy sector made a strong start to the year. As oil prices retreated as the year progressed the team reduced their weighting with some capital moved over to the energy transition stocks. The mining sector had another good year despite China remaining in lockdown through much of the year. Ongoing supply constraints and demand coming from the energy transition sector helped keep commodity prices elevated.
  • Chairman of the board Adrian Brown said: “Supply constraints coupled with increasing demand as post-COVID-19 economic activity restarted, caused inflation to rise sharply. An already challenging market environment was exacerbated by Russia’s invasion of Ukraine and the resulting humanitarian crisis. The energy supply shock that resulted drove energy prices ever higher, pushing inflation to a 40 year high... Your Company’s portfolio was well-positioned to weather these trends, as the portfolio managers had increased Traditional Energy exposure through 2021 and into 2022 to stand at 31.0% at the end of the year, and moved to lower weighting in the Energy Transition sector”.

Kepler View

Key geopolitical events and the need for more sustainable ways of using the planet’s resources has brought BlackRock Energy and Resources Income’s (BERI) sectors of investment to the fore. While there is a consensus that we must move towards lower carbon emissions, there is no overnight fix, and BERI is able to generate alpha by investing in companies involved at every level of the energy transition.

The traditional energy and mining companies have had a number of very strong years which has been brought on by strong capital discipline that has kept a lid on supply capacity, while demand has remained robust as the developing world still grows and mature economies look to replenish creaking infrastructure. Despite this, the managers of BERI still view both sectors as undervalued both by historical measures and compared to the wider market. Meanwhile, the long-term energy transition theme brings great opportunities with many newer and faster growing companies.

The managers of BERI have been adept in shifting allocation between the three key sectors which has helped deliver strong outperformance in recent years. As an example, they timed the reduction in transitional energy stocks well, ahead of the market rotation away from growth to value. We think that in addition to the growth potential, BERI offers a solid income proposition with a yield of approximately 3%. The underlying energy and mining companies have over the years gone through a period of cleaning up balance sheets with much improved cash flows. BERI’s dividends are backed up by strong revenue reserves, a valuable asset when times get harder as demonstrated during the pandemic where BERI did not cut the dividend unlike the equity market in general.

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