BlackRock World Mining Trust looks to gain from China 'soft landing'

Catherine Raw, co-manager of the BlackRock World Mining Trust, a star pick of Citywire Selection, is backing Chinese demand to support the price of copper and iron ore.

Getting back on the horse

BlackRock World Mining Trust (BRWM.L) is positioned to gain from China avoiding a feared ‘hard landing’ that would sap demand for commodities in the world’s second biggest economy, according to Catherine Raw, co-manager of the investment trust.

The comments came after the £1.24 billion trust endured a tough year during which its shares shed 21.5% as commodities were sold off amid fears over global growth. Despite the painful loss, the trust still beat its index.

But the trust put in a solid fourth-quarter performance, in which its shares gained 4.8% versus a 1.5% rise by its benchmark, as metals prices rebounded.

Copper and iron ore rallies

Pointing to the rallies in copper and iron ore, Raw said: ‘The positioning of the portfolio... is to be overweight specifically those commodities, and really only the commodities that China is now having to import.’

Raw, who runs the trust alongside veteran manager Evy Hambro, said the market appeared to expect China’s economy to grow 8% this year – down from previous highs, but still brisk enough to banish fears of a sharp slowdown.

‘We think that [figure] more than supports commodity prices at their current levels, given the supply constraints we have seen, and thereby are more than supporting the valuations, which we think are very low today,’ the manager noted.

Backing Rio Tinto

She pointed out that diversified miner Rio Tinto, the trust’s top holding, was trading on six times earnings, while it was typically valued at between 10 and 12 times earnings.

As such, she expects a re-rating in mining stocks this year, saying that she and Hambro have begun ‘to slightly increase the risk within the portfolio’, by ‘adding some of those names that got really beaten up last year’ but are still ‘quality producers’.

Narrowing discount

The trust’s discount has narrowed somewhat since asset management group City Of London, its biggest shareholder, urged management to take steps to reduce it in an open letter. As of Wednesday’s close, the shares were trading at a discount of 14.8% to the net asset value, slightly less than their average discount of 15.2%.

‘We’re never happy that people can buy the portfolio at such a large discount,’ Raw said, quipping that she saw it ‘as an insult to our management expertise'. But there was ‘clearly a message being sent to us’ that investors wanted more than ‘just a portfolio of mining stocks’, she said.

As such, she explained, the trust has become increasingly focused on yield, welcoming a trend in the sector of increasing dividend payments, which also provided protection in a ‘very volatile environment’.