The commodities boom has been good to BlackRock World Mining, the FTSE 250 investment trust that is one of the most diversified ways for investors to gain exposure to the sector.
Despite the disruptions that Covid-19 has caused to many of the companies in which it invests, the trust shot the lights out in terms of performance last year and its shares have continued to make solid gains.
Just as well. The last time Tempus took a look at BlackRock World Mining, in November 2019, we avoided the shares following a period of patchy returns and against the backdrop of trade tensions between Washington and Beijing.
This time the context is fears of a rise in inflation and worries about how quickly the world’s economies will be able to rebound after enduring more than a year of a global pandemic. There is also the question of how long the commodities bull run will last.
BlackRock World Mining was established in 1993 and its portfolio is managed by BlackRock, the world’s biggest fund manager. Its stated aim is to maximise total returns for shareholders and it benchmarks itself against several reference indices, including the MSCI ACWI Metals and Mining index.
There are several characteristics that make its investment approach distinctive. As well as listed and privately held businesses, the trust can also take positions in physical metals. On occasion it leverages its positions in companies by buying bonds and debentures, or even royalties that give it a share of the income stream from specific mines. It has done this with iron ore deposits operated by Vale, the Brazilian mining group whose shares it also owns, and OZ Minerals, based in Australia.
The net result of its investment principles is a portfolio that looks both diversified and exposed at the same time. As at the end of January, for example, just under 39 per cent of the portfolio was held in diversified miners, producers of all of the main commodities that spread the positions pretty evenly.
At the same time, the gold sector accounts for 24.7 per cent of the portfolio and copper 18.5 per cent. While this is obviously highly beneficial when both are in vogue, it means that the portfolio will feel some pain if either of them falls out of favour. The combined holdings in Vale through equities and debentures make up 11.1 per cent of the portfolio, which for a £1 billion investment trust makes for a sizeable position.
Still, its approach served it well last year. BlackRock World Mining’s assets returned 31.8 per cent over the year, way ahead of its reference index, which delivered a gain of 20.6 per cent. The FTSE All share lost 9.8 per cent over the period.
That strong run has helped to improve the trust’s performance when assessed historically. Not only has it beaten the index over one year, it has outpaced it over three and five years. While performance slipped in January, according to the latest fact sheet, the trust still performed better than the benchmark.
Can the good fortune continue? It certainly seems likely in the short term: just look at the record interim dividend declared by BHP, a special payout awarded by Rio Tinto and the far better than expected annual results from Anglo American in recent weeks. Not only have copper and iron ore been trading at ten-year highs but commodities are seen as a good hedge against inflation if, as expected, it begins to rise.
BlackRock Mining Trust’s shares, up 6p or 1 per cent to 602p yesterday, have had a strong run. They trade at a very modest premium to the net value of the assets and carry a dividend yield of a comfortable 3.5 per cent.
Advice Buy
Why Attractively positioned portfolio that should benefit from commodities gains and miners’ bumper dividends
Quoted bus companies
Mrs Thatcher was famously not a fan — and proving that the Conservatives are a party turned upside down, Boris Johnson is the reverse (Robert Lea writes).
Indeed the prime minister loves buses so much that in London he even has one vehicle-type named after him, though like him the Boris Routemaster bus is a bit high maintenance, prone to overheating and not quite as green as has been claimed.
Now he has launched a national bus strategy, or as his latest three-word and not quite coherent motif would have it: “Bus back better.”
As can be the case with such national strategies, it is long on policy rhetoric — cheaper, greener, more frequent— and a little light on detail on what it will mean for the operators.
Everyone can agree, though, that investment-wise the bus market has been the dowdy Cinderella of public transport for a long time.
If nothing else, the national strategy puts the spotlight back on the listed bus companies.
They fall into three categories: FirstGroup and Go-Ahead, which are as much train companies; National Express, which runs buses in the West Midlands and a national coach network but, after quitting the British rail industry, is much more a Spanish and American bus business; and Stagecoach, which has become a UK bus pure play after getting out of both the United States and railways in the UK after a spat with the government.
A year ago the four companies had about 70 per cent wiped off their market values as the pandemic struck. Their shares are now all roughly trading at about 66 per cent of their 13-month peak.
That might suggest plenty of upside in a return to normality, but what will that be in a new world of virtual working and increasing numbers of zero-emission cars, when the buses are a long way behind in investing in battery and hydrogen technologies?
Bus stocks are likely to recover further but, as with the railways, the journey will remain dependent on ministerial whim and Treasury largesse.
Advice Hold
Why Public transport stocks have become, more than ever, government contractors
