Fund Idea – BlackRock World Mining Trust

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I have two trading accounts with two strategies. My non ISA account, i.e. the account not protected by an ISA wrapper is the one I use typically for buying ETFs and trusts. My view here is long term, I don’t want to be trading in and out of these vehicles generating capital gains. I’ll therefore only sell if I have really lost confidence in the manager or the sector.

It is now the time of year where I start reviewing this portfolio so over the coming weeks I’ll probably be reviewing a few trusts and presenting a few ETF ideas.

What trust is first on the radar?

BlackRock World Mining Trust (BRWM) is a London listed investment trust specialising in Mining. The current share price is 330p, a long way from the record high of 815p in 2011. Earlier in 2017 the trust reached a record low of 157p though so it has since rebounded on the commodities rally, it is though still a long way from the high of 815p noted above.

An overview of the portfolio is as follows:

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Source – Morning Star

What is the macro environment looking like for this trust?

The outlook for commodities is promising, as a number of developed economies attempt to prolong growth and Donald Trump tries to live up to the electorate who voted him in. It is highly likely that these pressures we result in a lot of money spent on infrastructure. On the supply side there could also be the long lead effect of chronic underspending on major CAPEX projects and the mothballing of existing facilities. We have started to see the results of this already with surges in coal prices, copper and iron ore. The worry is that some of these price moves are as much as a result of speculation from Chinese traders as much as they are from genuine industrial demand.

Overall though there is some evidence we may be due the next commodities super cycle, even commodity uber bear Goldman Sachs have also started to become more bullish on the sector. On top of this the revered Neil Woodford also reported this month he was taking an exposure to the sector again in his Income Fund.

What about the trust itself?

This is a solid trust to get exposure to the sector. The trust factsheet can be found here. The trust has beaten the Natural Resources benchmark by almost 30% in the last year and is currently trading on a discount to the underlying assets of 12%. The dividend is also respectable at 5.45%, this being based on an expected final dividend of 24/03/2017 of 14p and the interim of 4p paid earlier this year.

Performance of BRWM – Source

Final comment is that the trust is managed by Evy Hambro, a very experienced manager in the sector.

But what are the key risks to investing here?

Much of the demand for commodities has been driven by China and its rapid industrialisation. Slowing growth has soured the need for commodities and depressed the prices of key inputs to industry. The key risk therefore is continued volatile and/or low commodity prices.

FX is also an issue to be aware of, the fund is priced in GBP buying companies with US$ assets. The GBP is at historic lows versus the US$ and significant strengthening could dampen returns here. I will cover a way of hedging your US$ exposures in a future post though if you can wait a few more days.


BUY – Target 400p

Don’t bet the ranch here, but I am looking to allocate up to 20% of my portfolio in the Natural Resource area over a number of investments for 2017. At present I see more upside than downside and hence I see this trust as a good long term play over the coming years.