Kepler Trust Intelligence: New Research

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BlackRock Commodities Income InvTst

25 February 2019

 

BlackRock Commodities Income: New research

25/02/2019     

·     BRCI has a conviction-led approach to delivering a high income from the global mining and energy sectors…

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BlackRock Commodities Income (BRCI) has a conviction-led approach to delivering a high income from the global mining and energy sectors. The shares currently yield 5.7%, considerably more than funds exposed to many other areas of the market. The managers have flexibility to invest in equities and fixed income to generate this income. With the top ten holdings currently accounting for 51% of total assets, relative to most equity funds it can be considered highly concentrated.

Managed by Olivia Markham and Tom Holl, BRCI typically has a roughly even split between mining and energy stocks. Reflecting the income mandate as well as the current outlook of the managers, a significant proportion of the trust is invested in the larger, diversified companies within each sector. The managers believe that within both of these sectors, diversified mega-caps are hugely cash-generative at current commodity price levels. With solid balance sheets and management focused on shareholders, they seem set fair for dividend hungry investors.

BRCI's objectives are to achieve both an annual dividend target and, over the long term, capital growth. The board considers a "reference index", of 50% EMIX Global Mining and 50% MSCI World Energy Index to compare performance, but does not see it as a benchmark, given the high-income mandate of the trust. Over the longer term, during what has been a severely volatile time for mining and energy companies, the trust has not kept pace with the reference index. 2018 started very positively, with the managers generating significant outperformance of the reference index, only to see worries of a China slow down and trade wars, erode it. BRCI has started 2019 in a positive manner, with the NAV + 1.9% at the time of writing, outperforming the AIC peer group which is -0.6% in NAV terms.

Income has been (and continues to be) a major focus for the managers and board. However, the trust was not insulated from the dividend cuts experienced by the sector, and the board reduced the dividend from 6p paid in 2015 to the current level of 4p. In the recently published annual results, the board has renewed its commitment to targeting 4p for the financial year ending 30^th November 2019.

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