Structural demand growth has supported strong returns from BRWM…by Thomas McMahon
Overview
BlackRock World Mining (BRWM) has outperformed global equity indices over the past five years, despite those indices being increasingly dominated by the large cap tech stocks and the AI trade (see Performance). The miners in which BRWM invests produce materials that are absolutely essential to the buildout of AI, as well as to the energy transition, thrust back to the top of the agenda by the recent European heatwave. This has been behind much of the trust’s success, along with a sharp rally for gold and gold miners over 2025.
There was a bit of a flight to liquidity in March when war broke out, but the trust’s NAV has stabilised close to its highs and the share price remains close to NAV, with the Discount at 3.1% and the trust trading on a small premium at times, perhaps indicating that investors recognize the strength of the long-term trends which should continue notwithstanding the conflict in the Middle East.
In recent months, managers Evy Hambro and Olivia Markham have been looking to add back in to gold miners after their sell-off, in particular to some more defensive royalty and streaming companies which aren’t as affected by rising energy and labor costs. The portfolio has more in the large cap diversifieds than it did entering the year, with the managers liking them on a mixture of valuation, commodity mix and restructuring grounds (see Portfolio). Gearing remains at relatively modest levels, reflecting some near term risks surrounding the war’s economic impact.
The yield is 2.5% at the time of writing, with a barnstorming 2025 for the portfolio having an impact on the denominator. The sale of a BHP royalty last year removes a significant contributor to the income, but the managers are optimistic that the bumper year for commodity prices last year will feed through into higher dividends in the sector this year.
Analyst’s View
We think this is an exciting time for investors in the mining sector. So many of the key themes being leant on by governments to generate growth depend on vast amounts of commodities, and Evy and Olivia make a good case that the market is complacent about the ability of supply to meet this demand. New commitments to nuclear power, renewables, defense spending and infrastructure are being made continually, yet new supply now takes much longer to come to market and is much more expensive, meaning that companies have been restrained in their capex plans in the face of expected demand. And while AI is throwing business models into disarray in the capital-light sectors, the infrastructure it requires – data centres, power generation and transmission – require commodities, while mining definitively can’t be disrupted by an LLM. This rotation of capital into businesses which can’t be easily disrupted by AI is also known as HALO trade – heavy assets, low obsolescence risk.
While returns were excellent for BRWM last year, the strength of gold was a key driver, which is down to other factors. We think the diversification provided by the industrial metals and precious metals is an important attraction of BRWM, as it can help moderate the volatility in the individual metals markets. It’s intriguing that BRWM has continued to trade close to par and at times on a premium, even as concerns about global growth post-Iran war have been prevalent. We think this indicates many investors have started to cotton on to what AI, renewables, defense spending and reshoring mean for the commodities sector, which is that it should probably be much more than 2% of global equity markets given how crucial it is to the most important growth trends.
Bull
- Large liquid trust in a specialist sector, using the structure’s flexibility to the full
- Prospects for dividend growth look good
- Structural tailwinds for the investment case
Bear
- Single-sector portfolio that is highly cyclical in nature may demonstrate volatility
- Dividends will likely be cyclical rather than progressive
- Discount tends to be volatile and can widen significantly when the sector is out of favour
Read the latest research on BRWM here >
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