Investment trust BlackRock Energy and Resources Income is very much overshadowed by its sister fund BlackRock World Mining – it’s a tenth the size and 12 years younger.
Yet there is a lot to admire about the stock market-listed trust.
Its overall performance numbers are better than World Mining over the past five years – 139 versus 110 per cent – but inferior over the past one and three years.
And in terms of dividends, it is currently providing shareholders with a growing annual income, with dividend targets set in advance by the board.
The payment target for the current financial quarter is 1.25p a share, equating to an annual income of 5p.
If met, it would exceed last year’s annual payment of 4.75p. By way of comparison, the income generated by World Mining is more haphazard.
‘Income is an important part of what shareholders want from this trust,’ says Tom Holl, who runs the £189 million trust with Mark Hume. ‘Yet in terms of the dividend yield, it has come down in response to the trust’s strong capital performance.’
The shares are up more than 50 per cent over the past year, resulting in a current dividend yield of 2.6 per cent and a share price of around £1.84.
But the biggest stand-out feature of the trust is its flexible approach to capturing returns, whether capital or income.
In terms of investments, the managers are happy to invest in conventional energy companies (oil and gas producers) such as Shell and US-listed Chevron, which are currently top-ten holdings in the trust. These types of company account for just under a quarter of the fund’s assets.
Alongside these are investments in mining companies and businesses involved in the transition to clean energy.
Respective exposure is just above 40 per cent and 35 per cent.
The theme that currently excites Holl the most is the demand for electricity, sparked by the need for data centres to fuel the artificial intelligence boom.
Opportunities, he says, abound, adding: ‘Grid companies and electricity generation businesses were once considered low growth companies. But data centres and the drive towards electrification that energy transition demands are changing that.
‘It’s quite exciting, from an investment point of view.’
The result is a top-ten stake in UK-listed energy provider SSE which it has built up over the past year. It also has a position in Elia Group, which is a grid operator in both Belgium and Germany.
Key holdings in mining companies include UK-listed Glencore and Anglo American. Miners, says Holl, are big beneficiaries of the energy transition story as a result of the need for various metals – for example, a mix of aluminium, copper, silicon and silver is used in the production of solar panels.
On the income front, the trust gets most of it from dividends paid by the companies it invests in. But this is topped up by income from both holdings in corporate bonds and trading in options.
‘It’s about using the tools available to us as managers of an investment trust,’ says Holl. The trust’s shares trade at a small discount to the value of the underlying assets, in part a result of the board’s strategy to buy back shares when the discount widens.
Holl hopes in time that the trust can grow in size.
‘We enjoy running it,’ he says, ‘and the board push us as investment managers all the time.’
The fund’s annual charges total 1.15 per cent and its stock market ticker and identification code are respectively BERI and B0N8MF9.
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