Shares of Rolls-Royce are up 108% over the past year, which I find bittersweet. That’s because I only bought the stock in March and have therefore captured merely the tail end of these huge returns. So, I’m ignoring red-hot Rolls shares this month and will instead add to this FTSE 250 investment trust.
Top performer
BlackRock World Mining Trust (LSE: BRWM) operates a portfolio of diverse global mining and metal stocks. Top holdings include Glencore, Vale and BHP.
One big attraction for me here, however, is that I get exposure to other miners that I wouldn’t otherwise invest in. These include First Quantum Minerals, a Canadian-based copper miner, and smaller privately-held producers.
The trust’s share price performance over five years has been exceptional. Even after dropping 20% over six months, it’s up 62% (excluding dividends) in half a decade.
If we include the payouts as well, the total return has soared far above that of the FTSE 250.
Metals in big demand
Building clean energy technologies, such as wind turbines and electric vehicles (EVs), needs an incredible amount of metals and minerals.
A standard EV requires six times more critical minerals than a conventional car, while iron ore is the primary raw material used to make steel wind turbine structures.
What’s more, if the rapid growth of hydrogen continues, that will underpin massive demand for nickel and zirconium (a very light metal) for use in electrolysers.
As Olivia Markham, the trust’s co-manager, has pointed out: “We can’t have the transition to renewable energy without the mining industry. [Global] demand for copper, nickel, cobalt and lithium is growing at double-digit percentage rates to the end of the decade.”
It could even be argued that we’re exchanging a fossil fuel-based energy system for one centred around metals.
Copper and gold
Of course, mining stocks are cyclical, which means they’re driven by the laws of supply and demand. Therefore, the ups and downs of the global economy can make the sector extremely volatile.
So I find it reassuring that the trust’s management team has decades of experience navigating mining boom-and-bust cycles.
Presently, the managers have heavily positioned the portfolio towards copper and gold.
The world is currently facing a global copper shortage, fuelled by challenging supply streams in South America and rising global demand. These deficits could send copper prices much higher in future.
Meanwhile, in the case of gold, management believes that a falling US dollar will be good for the precious metal. That’s partly because central banks are continuing to buy gold as a store of value in order to diversify their foreign exchange reserves.
This bodes well for the price and for gold miners too.
Passive income
The current dividend yield is 6.5%, which I find attractive.
Now, this yield isn’t guaranteed. Miners are known to cut dividends and the trust did make a significant reduction to the payout in 2017. However, overall it has a tremendous record of providing income since launching nearly 30 years ago.
As a long-term investor, I want exposure to the mega-trend of decarbonisation. This trust gives me that, as well as attractive levels of passive income and the potential for capital growth.
