Page 19 - DIY Investor Magazine | Issue 41

BlackRock World Mining (BRWM) offers a diversified portfolio of global mining stocks that are well-positioned to benefit from these structural growth drivers, balanced with exposure to precious metals to maximise total returns.
Managers Evy Hambro and Olivia
‘DEMAND FOR Markham are currently overweight
COPPER WILL SOAR copper due to its critical role in
BY 600% BY 2030 the energy transition, with copper
IN ITS BASE accounting for around a quarter
CASE SCENARIO’ of the portfolio. Copper is the most cost-effective conductivematerial for the capture, storage and transmission of renewable energy and, according
to Goldman Sachs, demand for copper will soar by 600% by 2030 in its base case scenario (rising to 900% in the case of hyper adoption of green technologies).
With continued supply constraints, Goldman Sachs notes: “We see the copper market sleepwalking to a classic case of the ‘revenge of the old economy’, just as oil did during the 2000s commodity boom. We now estimate a long-term supply gap [of] twice the size of the gap that triggered the bull market in copper in the early 2000s.”
Evy also spoke about the brown-to-green theme
in our recent webinar, whereby mining companies are decarbonising their production processes. This could drive a re-rating in valuations if companies are able to charge
a higher premium for low-emission products beyond the purity of the commodity itself.
WHY ACTIVE MANAGEMENT MATTERS Commodities provide an opportunity to diversify into
a different asset class to equities and the underlying commodities have often outperformed when equities have underperformed. As we explored in our recent guide to investing in commodities, they have also acted as an effective hedge against inflation on occasions.
The commodities sector itself is also diverse, from agricultural products to oil and gas, and base metals to precious metals in the mining sector. Each commodity
has a unique set of supply and demand drivers, which can be a barrier to entry for retail investors without the requisite expertise.
As a result, this is a sector that lends itself well to active management. The managers of BRWM have the flexibility to invest across the broad universe of commodities and geographies, enabling them to tactically adjust exposures to exploit valuation opportunities.
By way of example, Evy and Olivia tilted the portfolio towards large-cap mining companies in 2023 with Glencore, BHP, Vale and Freeport-McMoRan comprising the four largest holdings (as at 30/04/2024).
The managers feel that the size and strong balance sheets of these companies would enable them to weather any
short-term volatility from weak economic growth in the major global economies.
Balance sheet strength is also a theme across the wider BRWM portfolio, with mining companies having demonstrated strong discipline in controlling capital expenditure and paying down debt. As a result, the European mining sector has an average net debt to EBITDA of 0.7 (as at 31/12/2023, Morgan Stanley), considerably below the average of most sectors.
BRWM also holds a significant position in gold miners due to the noticeable divergence between their share prices and the underlying gold price over the last year. Gold currently comprises around 18% of the portfolio, with holdings including Barrick Gold and Wheaton Precious Metals.
‘THE BENEFIT OF ACTIVE
The benefit of MANAGEMENT IS
active management DEMONSTRATED BY BRWM
is demonstrated by DELIVERING A FIVE-YEAR
BRWM delivering a NET ASSET VALUE TOTAL
five-year net asset RETURN OF MORE THAN 110%’
value total return
of more than 110% (as at 28/05/2024), comfortably exceeding the return from the MSCI ACWI Metals & Mining Index. Although the trust does not have a progressive dividend policy, it will pay out most of annual net income
in the form of dividends, with BRWM currently trading
on an attractive dividend yield of 5.6% (as at 28/05/2024).
Looking forward, the sector is well-positioned to ride the tailwinds of strong demand for commodities to support the transition to net-zero. While investors should be cognisant of the higher inherent volatility of commodities, active management can help to protect capital during market downturns.The last word goes to legendary investor
Jim Rogers, who advised: “Keep in mind that commodities’ prices move not because of magic, but because of shifts
in supply and demand. The price of a commodity will never go to zero”
SEE THE LATEST RESEARCH ON BRWM HERE.
WATCH VIDEO HERE
Disclaimer: Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by BlackRock World Mining. 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.
19 DIY Investor Magazine
· August 2024