FTSE 250-listed BlackRock World Mining Trust (LSE: BRWM) has been a popular buy over the last year. Here, I’ll be asking whether I should, perhaps belatedly, be joining the queue for the investment trust once markets reopen on Tuesday.
What is the BlackRock World Mining Trust?
As the name suggests, this fund is dedicated to owning companies that explore, extract and sell key metals and minerals needed across the globe.
Unsurprisingly, the portfolio’s major holdings are some of the biggest miners going. Brazilian giant Vale features heavily, as do FTSE 100-listed firms, BHP Group, Anglo American and Rio Tinto. While 40% of assets are invested in mining firms that source a number of metals, 20% of the fund is invested in copper plays. Almost the same amount is devoted to gold miners.
Naturally, an actively-managed investment trust means fees. Based on its most recent fact sheet, BRWM charges 0.9% a year to manage holders’ money.
Why is it getting popular?
I think there are two reasons why this investment trust is in demand. First, there are fears over inflation and demand for safe-havens. Mining companies are one example of the latter.
The thinking behind this is that prices tend to rise when economies are flying. Since more things are being made, it makes sense to back those companies who provide the materials needed to make them.
The second reason why the Blackrock World Mining Trust might be proving popular is the excitement surrounding renewable energy sources and electric vehicles. The fact that these featured heavily in the $2trn spending plan announced by US President Joe Biden back in March shows how hot these themes will be going forward. It’s clear that vast amounts of metal will now be needed to bring everything to fruition.
Both of the above should prove to be tailwinds for miners. A rise in demand should lead to higher earnings. Higher earnings should boost share prices and investor returns. A boost to investor returns should, rather neatly, provide some protection from the aforementioned inflation.
I’d also expect more dividends for shareholders. As things stand, this investment trust offers a yield of 3.2%. That’s lower than you could get from buying some of the individual miners from the FTSE 100. However, payouts will arguably be obtained at a lower level of risk.
Should I buy?
Based on future prospects, I find the case for investing in BlackRock pretty compelling. Even so, it pays to consider the flip side.
If concerns over inflation subside, those already holding could flee the investment trust and recycle their profits into growth stocks again. Even if this doesn’t happen, there will always be some who want to bank gains. It’s also worth remembering that commodity investing can be an ‘interesting’ ride, even when times are good.
Personally, I’m fine with above-average volatility, so long as I know I can stay on board for the long term. And, even if (when) the investment trust does temporarily dip in value, that dividend stream should compensate. If I’d held the shares, I’d simply receive, reinvest and repeat. Yes, the ongoing charge is on the high side, but the diversification aspect makes me think BRWM is worth the cost.
With a potential commodity supercycle on the way, I’m sorely tempted to begin building a position in this investment trust in haste.