The Armchair Trader has for years covered the Energy and Mining sectors in detail. These sectors powered the first industrial revolution, unearthing vast amounts of coal and oil to power the economic transformation of Europe and North America into industrialised societies.
Today, the energy and mining sectors are front and centre of the ‘Fourth Industrial Revolution’, so-coined by Klaus Schwab of the World Economic Forum, the era we’re living in now, where Schwab highlights the amalgamation of technologies like A.I., gene editing, and advanced robotics that are breaking down the existing barriers between the physical, digital and biological worlds.
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However, should you search for mining or energy stocks on Google (or your preferred search engine), or even flick through the pages of The Armchair Trader, you’ll be confronted by an overwhelming list of companies from vast global titans to tiny exploration companies, a huge choice of target commodities in every region of the world (and beyond with the growing market in outer-space mining).
It can be a formidable task picking the right company, asset and location, and be warned, a reasonable number of junior explorers will never extract anything from the ground, finding it more profitable to mine the market rather than mine the earth. Remember the warning often attributed to American writer Mark Twain: “A mine is a hole in the ground with a liar standing next to it,” and never has the caution: “Your capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested,” been more prescient than when referring to the mining or energy sectors.
Stock-picking and asset allocation
A sensible option is derisking your investment decisions by letting larger, better-resourced sector specialists take on the burden of stock-picking and asset allocation through putting your money in an Investment Trust or Managed Fund, so you can sleep-easy at night but still take advantage of the opportunities that the sector affords.
One such option is the BlackRock Energy and Resources Income Trust (BERI) [LON:BERI] a GBP150m mining and energy specialist, launched in December 2005.
The fund is managed by Tom Holl and Mark Hulme. Holl has been with BlackRock since 2006, formerly with the global equities team, he took management of the Investment Trust in 2008. Hulme joined BlackRock in 2017 from Colonial First State and also worked for Bank of America Merrill Lynch, Credit Suisse, JP Morgan and Wood Mackenzie as a senior equities analyst covering large-cap energy stocks.
The fund currently (at the end of January 2024) has a large-cap bias with a preference for mining (44% assets under management) over traditional energy stocks (29.3% AUM). However, the investment trust does have a significant exposure to energy transition stocks (26.2% AUM), which hints at the way the market is developing.
investment trusts
| Investment | Weighting | Region |
| Rio Tinto LON:RIO | 5.2% | Global |
| BHP [LON:BHP] | 4.0% | Global |
| Glencore LON:GLEN | 3.3% | Global |
| Shell LON:SHEL | 2.2% | Global |
| Vale [NYSE:VALE] | 1.5% (Equity) 1.4% (Bond) |
Latin America |
| Source: BlackRock (31st January 2024) | ||
The managers themselves admitted the fund has had a tough time recently with Holl saying: “After a very strong performance in 2022, the twelve months to 30th November 2023 [the fund’s anniversary] have been tougher in the extractive mining and traditional energy industries and even harder for many of the companies in the energy transition sector […] It was a difficult start to the year [2024] for the mining sector on the back of price declines for most mined commodities. Mined commodity prices softened as sentiment around China deteriorated amidst weakness in the country’s domestic property and equity markets.”
Holl added: “Natural gas prices were weaker in January with mild winter weather in Europe, whilst the US announced a pause in approvals for new Liquified Natural Gas (LNG) export projects. Against this backdrop, Brent and WTI oil prices rose by 6.8% and 6.1%, ending the month [January] at USD83/bbl and USD$76/bbl respectively.”
The fund which falls into the AIC’s Commodities and Natural Resources sector but does not correlate with any single benchmark index offered positive total returns (on a NAV calculation) on a discrete basis four years out of the past five.
94% return over five years
In the year to December 2023 the fund fell by -3.2%. However, in 2021/22 the fund offered a +35.3% return, with positive returns of +28.1%, +16.9% and +12.4% in the three years prior to this. On a cumulative basis BERI returned (on a NAV basis to end-January 2024) +0.8% for three-months. Over six-months the fund fell by -7.6%, performance that was amplified for a one-year return of -13.4%. Over longer periods though BERI was back in the black with a +57.5% return over three-years and a +94.1% return over five-years.
The Investment Trust charges 0.8% of gross assets per annum. BlackRock is also entitled to a rebate of the management fee in the event that the Investment Trust’s ongoing charges exceed 1.25% of net assets per annum.
Without doubt, the mining and energy sectors have had a tough year, which reflects in BERI’s performance record. That said, the requirement for what miners and energy companies provide isn’t going to go away any time soon – in fact the demand for commodities and energy is only going to accelerate – and tapping into this potential through a fund like BERI could be a wise move.
- Find the latest research for BlackRock Energy and Resources Income on the AIC website
