BlackRock Energy and Resources Income Trust plc (LON:BERI) has announced its Annual Report and Financial Statements 30 November 2024.
For more information on BlackRock Energy and Resources Income Trust and how to access the opportunities presented by the energy and resources markets, please visit www.blackrock.com/uk/beri
Performance record
| As at 30 November 2024 | As at 30 November 2023 | |
| Net assets (£’000)1 | 167,327 | 162,362 |
| Net asset value per ordinary share (pence) | 137.66 | 123.58 |
| Ordinary share price (mid-market) (pence) | 121.00 | 110.40 |
| Discount to net asset value2 | 12.1% | 10.7% |
| ========= | ========= |
| For the year ended 30 November 2024 | For the year ended 30 November 2023 | |
| Performance (with dividends reinvested) | ||
| Net asset value per share2 | 15.3% | -11.8% |
| Ordinary share price2 | 14.0% | -15.2% |
| Reference index# | 0.5% | -17.0% |
| ========= | ========= |
| Since inception to 30 November 2024 | Since inception to 30 November 2023 | |
| Performance since inception (with dividends reinvested) | ||
| Net asset value per share2 | 259.9% | 212.2% |
| Ordinary share price2 | 218.4% | 179.4% |
| ========= | ========= |
| For the year ended 30 November 2024 | For the year ended 30 November 2023 | Change % | |
| Revenue | |||
| Net profit on ordinary activities after taxation (£’000) | 4,541 | 5,774 | -21.4 |
| Revenue earnings per ordinary share (pence)4 | 3.63 | 4.39 | -17.3 |
| ————— | ————— | ————— | |
| Dividends (pence) | |||
| 1st interim | 1.125 | 1.100 | 2.3 |
| 2nd interim | 1.125 | 1.100 | 2.3 |
| 3rd interim | 1.125 | 1.100 | 2.3 |
| 4th interim | 1.125 | 1.125 | – |
| ————— | ————— | ————— | |
| Total dividends paid | 4.500 | 4.425 | 1.7 |
| ========= | ========= | ========= |
1 The change in net assets reflects portfolio movements, the repurchase of shares and dividends paid during the year.
2 Alternative Performance Measures, see Glossary contained within the Annual Report and Financial Statements.
3 The Company was launched on 13 December 2005.
4 Further details are given in the Glossary contained within the Annual Report and Financial Statements.
# Reference index is the blended comparator index comprised of three indices – the MSCI ACWI Select Metals & Mining Producers Ex Gold and Silver IM (Mining), the MSCI World Energy Index (Traditional Energy) and S&P Global Clean Energy Index (Energy Transition) with a 40:30:30 mix of the 3 indices.
Chairman’s statement
Dear Shareholder
Overview
From the start of the Company’s financial year on 1 December 2023 and through to the first half of 2024, markets as a whole showed resilience driven initially by signs of easing inflation and expectations of interest rate cuts in the US and UK. However, as the year progressed, continued weak economic data from China was a significant headwind for commodity prices and the mining sector in particular. In response, our portfolio managers reduced Mining sector exposure (down from 44.5% at the start of the year to 40.2% at 30 November 2024) and increased the weighting of Energy Transition stocks within the portfolio (up to 29.2% at the year end from 24.9% at the start of the year) on the back of compelling valuations.
Given the mix of opportunity and risks, the Board remains confident in your Company’s 3-pronged investment strategy (Mining, Traditional Energy and Energy Transition). Since implementing this strategy, we have seen each of the 3 sectors move in or out of investors’ favour, and this strategy gives the portfolio managers the flexibility to manoeuvre the portfolio around volatile markets, to take advantage of where they think the best investment opportunities can be found.
Performance
During the year ended 30 November 2024, the Company’s net asset value (NAV) per share returned 15.3% and the share price returned 14.0% (both percentages in British Pound Sterling terms with dividends reinvested). This was significantly ahead of the internal benchmark that the fund manager and the board use to evaluate performance. Performance has been measured against a blended comparator index which comprised three indices – the MSCI ACWI Select Metals & Mining Producers Ex Gold and Silver IM (Mining), the MSCI World Energy Index (Traditional Energy) and S&P Global Clean Energy Index (Energy Transition) with a 40:30:30 mix of the 3 indices. Over the period the comparator index showed a return of 0.5% with the representative indices returning for Mining 0.6%, Traditional Energy 10.7% and Energy Transition -11.7% (all percentages in British Pound Sterling terms with dividends reinvested).
Within the Mining portfolio, mergers and acquisitions activity was a driver of performance, with the acquisition of Filo Corp (by BHP and Lundin Mining), and of the Canadian steel company, Stelco (by its peer, Cleveland-Cliffs) both contributing significantly to returns. In the Energy Transition portfolio, the most significant contributions to performance came from industrial holdings, manufacturing energy efficiency products and electricity grid infrastructure equipment suppliers (key to support the growing demand for electricity generation).
Cumulative performance as at 30 November 2024
Performance to 30 November 2024 | 1 Year change % | 2 Years change % | 3 Years change % | 5 Years change % | Since inception2 % |
| Net Asset Value (with dividends reinvested)1 | 15.3 | 1.7 | 47.0 | 125.0 | 259.9 |
| Share price (with dividends reinvested)1 | 14.0 | -3.4 | 39.9 | 129.9 | 218.4 |
| Reference index3,4 | 0.5 | -14.9 | 13.9 | N/A | N/A |
| ========= | ========= | ========= | ========= | ========= |
1 Alternative Performance Measures. Further details of the calculation of performance with dividends reinvested are given in the Glossary contained within the Annual Report and Financial Statements.
2 The Company was launched on 13 December 2005.
3 Reference index is the blended comparator index comprised of three indices – the MSCI ACWI Select Metals & Mining Producers Ex Gold and Silver IM (Mining), the MSCI World Energy Index (Traditional Energy) and S&P Global Clean Energy Index (Energy Transition) with a 40:30:30 mix of the 3 indices.
4 Please note though, that the Company’s objectives are to achieve both an annual dividend target and, over the long term, capital growth (see table above). Consequently, the Board does not formally benchmark performance against mining and energy sector indices as meeting a specific dividend target is not within the scope of these indices. In addition, the S&P Global Clean Energy Index following recent changes is the best available proxy.
Source: BlackRock. Data as at 30 November 2024.
Our portfolio managers provide a detailed description of the main contributors and detractors to performance during the period, insight into the positioning of the portfolio and their views on the outlook for the forthcoming year in their report below.
The Board is very pleased with the Manager’s performance over all periods shown. The Company’s NAV returned 125.0% over 5 years to 30 November 2024 compared to 81.5% net total return in MSCI ACWI Select Metals & Mining Producers Ex Gold and Silver IMI Index and 71.4% net total return in the MSCI World Energy Index (all percentages in British Pound Sterling terms with dividends reinvested).
Further information on investment performance is given in the Investment Managers’ Report below.
Revenue return and dividends
The Company’s revenue earnings per share for the year to 30 November 2024 was 3.63 pence per share, a 17.3% decrease compared to the prior year revenue earnings per share of 4.39 pence. The decrease was driven by lower dividend payments from a number of key mining companies, combined with an increased portfolio exposure to Energy Transition companies, which tend to have a lower yield. The Board’s dividend target for 2024 was to declare quarterly dividends of at least 1.125 pence per share in the year to 30 November 2024, making a total of at least 4.50 pence per share for the year as a whole. The shortfall of 0.87 pence between earnings per share and the annual dividend target will be funded out of the Company’s available revenue reserves (c£5 million (4.29 pence per share) at 30 November 2024). This target represents a yield of 3.7% based on the share price of 121.00 pence at 30 November 2024, and 3.8% based on the share price at the close of business on 28 January 2025.
The Board has decided to maintain the annual dividend target of at least 4.50 pence per share for the year to 30 November 2025. The Company is committed to meet its target dividend next year and to review it annually. The dividend will be met through a mix of dividend income from the portfolio and revenue reserves, although this may be supported by the distribution of other distributable reserves if required.
The Company may also continue to write options to generate revenue return, although the portfolio managers’ focus is on investing the portfolio to generate an optimal level of total return without striving to meet an annual income target and will only undertake option transactions to the extent that the overall contribution is beneficial to total return.
This dividend target should not be interpreted as a profit forecast.
Gearing
The Company operates a flexible gearing policy which depends on prevailing market conditions. It is not intended that gearing will exceed 20% of the gross assets of the Company. The maximum gearing used during the period was 14.8%, and the level of gearing at 30 November 2024 was 13.4%. Average gearing over the year to 30 November 2024 was 9.5%. For calculations, see the Glossary contained within the Annual Report and Financial Statements.
Management of share rating
The Directors recognise the importance to investors that the Company’s share price should not trade at a significant premium or discount to NAV, and therefore, in normal market conditions, may use share repurchases, sales of shares from treasury and share issues to ensure that the share price is broadly in line with the underlying NAV.
Discounts across the closed end funds sector remained wide over the period under review, driven by ongoing uncertainty around interest rates, cost inflation and global economic growth, and heightened by an accelerated stream of retail selling in the run-up to the UK Budget (and expectations of higher capital gains taxes). Against this challenging backdrop, the Company’s shares started the year under review trading at a discount of 10.7% and ended the year at 12.1%, which compared to a closed end fund sector average (excluding 3i) of 15.5% and an average for the AIC Commodities and Natural resources peer group of 13.1% at 30 November 2024. The Board stepped in to actively manage the discount, buying back 9,833,697 shares in the year under review at a cost of £11,288,000 and at an average discount of 10.8%. This discount management activity has continued since the year end, and up to 28 January 2025, the Company repurchased 1,708,000 ordinary shares for a net consideration of £2,046,000 at an average discount of 10.3%. As at 28 January 2025 the Company’s shares were trading at a discount of 8.3%. The Board’s objectives in exercising the buy back are to seek to minimise share price volatility and encourage the Company’s share price to trade within as tight a range as possible, taking into account the various factors described above. However, despite consistent and targeted action in support of the share rating, it was disappointing to see the discount remain wide during the period. The Board recognises that shareholders experience the share price performance of the Company and, in conjunction with our Broker and the Manager, keep the share rating under continuous review seeking to understand and address the drivers of the discount.
There are of course several factors which influence the level of premium/discount at which a Company’s shares trade in the market, many of which are outside of the Board’s direct scope of control or influence. It is important to view the Company’s share rating in the wider market context, noting that the Investment Trust sector average discount at 30 November 2024 had widened to 15.5% compared to 12.8% at the end of 2023 and 10.7% at the end of 2022, remaining correlated with Gilt yields. Buy back activity was significantly elevated across the sector as a whole as boards grappled with selling pressure, with calendar year 2024 setting a new record for buy backs at £7.6 billion, nearly double the previous calendar year. Buybacks across the sector hit a monthly-high of £952m in October with a record-breaking 125 funds buying back shares, and this trend continued into November, with 124 companies buying back shares. Overall, we believe the share buy back activity undertaken has been beneficial in reducing the volatility of our share rating and delivering NAV accretion. Your Board will continue to monitor the Company’s share rating and may deploy its powers to support it by issuing or buying back the Company’s shares where it believes that it is in shareholders’ long-term best interests to do so.
Consumer Duty Value Assessment
The Manager has conducted an annual value assessment on the Company in line with FCA rules set out in the Consumer Duty regulation. The assessment focuses on the nature of the product, including benefits received and its quality, limitations that are part of the product, expected total costs to clients and target market considerations. Within this, the assessment considers quality of services, performance of the Company (against both relevant reference indices and peers), total costs associated with the product (including management fees and other operating costs), and also considers whether all consumers, including vulnerable consumers, are able to receive fair value from the product. The Manager has concluded that the Company is providing value based on the above assessment.
Ongoing charges
The Directors want to ensure that shareholders receive good value with an ongoing process of reviewing operating costs. To that end, as also announced on 1 December 2024, we agreed a reduced level of cap on the Company’s Ongoing Charges (as set out and defined in the Glossary contained within the Annual Report and Financial Statements and for avoidance of doubt including the management fee). Previously, Ongoing Charges had been capped at 1.25% per annum of average daily net assets; with effect from 1 December 2024 this reduced to 1.15% per annum of average daily net assets.
Changes in cost disclosure requirements
Following the FCA’s statement on 19 September 2024 that Investment Trusts were no longer required to comply with the cost disclosure requirements under the UK PRIIPs Regulation, the Company has amended its KID Document in line with guidance from the Association of Investment Companies (“AIC”), making it clear in the KID that there were no additional costs paid by investors to acquire shares, and disclosing that the Company had an OCF of 1.19% (reducing to 1.15% from 1 December 2024). In addition, the Manager has amended the cost data included in the EMT files provided to distributors to reflect the most up to date OCF for the Company of 1.15% as this is felt to be the most accurate reflect of the costs associated with operating the Company. The Board considered that this change ensures that the Company is reporting its cost data in line with the wider industry approach and is on a level playing field with other products in terms of how the product is viewed by investors when they are assessing cost information to make investment decisions.
Agreement with Saba Capital Management L.P.
On 22 January the Company announced that it had entered into an agreement with Saba Capital Management L.P. (‘Saba’) pursuant to which Saba has given a number of undertakings to the Company, including commitments not to put forward any proposals to shareholders nor to requisition any resolution or general meeting of the Company nor to seek to control or influence the Board or the Company or the policies or management of the Company. More detail can be found in the stock exchange announcement which is available at the following link https://www.londonstockexchange.com/news-article/BERI/agreement-with-saba/16863476. The agreement covers the period up to the Company’s 2027 AGM (expected to be held in March 2027). The Board is committed at all times to exercising the best standards of corporate governance, promoting the success of the Company and putting first the interests of shareholders as a whole, and the agreement in no way restricts the Board’s or the Company’s independence.
Board composition
The Board supports the increasing focus on independence, tenure and succession planning set out in the updated Financial Reporting Council’s review of the UK Corporate Governance Code. As previously announced, Anne Marie Cannon joined the Board on 16 January 2024, and Carol Bell, having served nine years on the board, retired at the Company’s AGM held on 15 March 2024. As at the date of this report the Board consists of four independent Non-executive Directors. In accordance with best practice and good corporate governance, the Directors continue to submit themselves for annual re-election.
Further information on all of the Directors can be found in their biographies contained within the Annual Report and Accounts. Information on the recruitment and selection process undertaken and details of the Board’s policy on director tenure and succession planning can be found in the Directors’ Report contained within the Annual Report and Accounts.
Annual general meeting arrangements
The AGM will be held in person at 12:00 p.m. on Thursday, 20 March 2025 at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL.
The Board very much looks forward to meeting shareholders and we encourage you to attend this year’s AGM. A buffet lunch and refreshments will be available to all shareholders joining us on the day, and the Board look forward to meeting shareholders over lunch to discuss your views and to answer any questions you may have. In the meantime, if shareholders would like to contact me, please write to BlackRock Energy and Resources Income Trust plc, 12 Throgmorton Avenue, London EC2N 2DL, marked for the attention of the Chairman. Even if you cannot attend, we urge you to vote. For those of you who hold shares via platforms, information on how to vote can be found here: https://www.theaic.co.uk/availability-on-platforms.
Market outlook and portfolio positioning
The Energy Transition remains one of the key megatrends, likely to affect the world economy over the next 2-3 decades, and a priority for both governments and companies. On one hand, governments in the developed world are facing rising spending commitments due to ageing populations, higher interest burdens and a focus on defence spending: This may mean that expenditure on the low-carbon transition is more subdued through the course of 2025 as governments and businesses juggle priorities. On the other hand, increased focus on energy security and increased power demand from artificial intelligence (AI) applications, are likely to spur increased demand on electricity grids and the materials and fuels that power them. Against this backdrop, the flexibility of the Company’s investment mandate with the ability to shift exposure between Mining, Traditional Energy and Energy Transition sectors, means that it is uniquely positioned to serve investors as these sectors evolve. The Board considers that all three sectors have an important role to play as the energy system continues its transition to a lower carbon economy; the Mining sector provides the material supply chain for low carbon technologies from steel for wind turbines to lithium for electric cars; traditional energy is needed to support base load energy to continue to power economies during the transition; and the path to a lower carbon economy is expected to disrupt many industries and business models with scope for the Company to invest directly in opportunities in the Energy Transition space. The Board is confident that the Company offers investors exposures which would be hard to replicate through passive indices and remains well-placed to benefit from these key investment trends over the long term.
ADRIAN BROWN
31 January 2025
Investment Manager’s report
Market overview
After a tough year in 2023, it was pleasing that the Company delivered a positive year in 2024, delivering a NAV total return well ahead of the passive sector indices and ahead of our blended comparator, and continuing the strong growth delivered over the last 5 years (NAV total return of 125.0%). This was achieved in a volatile environment across the three main sectors of focus with a strong dispersion of performance between commodities as well as within the different industries within the energy transition space. This kind of environment plays well to our active management style, investing flexibly across the mining, energy and energy transition.
The US markets continued to dominate global market performance, delivering more than double the total return of the UK indices. The US market now accounts for around seventy percent of the MSCI World Index and whilst there are good reasons for robust US performance to continue, it is worth remembering that markets go through cycles and phases – for example in the 1980s Japan represented more than 40% of the MSCI World Index and now only stands at around 6%.
There was a lot of focus on elections in 2024 with approximately half of the world’s population and countries going through polls. Whilst the issues that were debated ranged hugely in each election contest, what was notable was the absence in references to austerity or balanced budgets. With Governments in the developed world facing rising spending commitments due to ageing populations, higher interest burdens and greater defence spending, the risk of renewed inflation remains and the outlook for returns from real or hard assets like commodities is potentially exciting.
Despite all of the geo-political turmoil, and the challenging backdrop, energy markets were largely untroubled, with oil prices trading within a relatively tight range. Although the sentiment towards energy transition may have come down from its very high levels of the last few years, the transformation is still very much happening but perhaps with a greater focus on economic rationality. This is reassuring for our preferred areas of investment and supports the approach taken in this Company of being technology and commodity agnostic – remaining focused on risk-adjusted investment returns rather than committing to championing one possible technology or solution.
Commodity | 30 November 2024 | 30 November 2023 | % change | 2024 on 2023 Average Price % Change1 |
| Base Metals (US$/tonne) | ||||
| Aluminium | 2,577 | 2,156 | 19.5% | 5.3% |
| Copper | 8,892 | 8,388 | 6.0% | 7.4% |
| Lead | 2,048 | 2,092 | -2.1% | -3.7% |
| Nickel | 15,671 | 16,438 | -4.7% | -25.0% |
| Tin | 28,695 | 22,984 | 24.8% | 15.0% |
| Zinc | 3,109 | 2,467 | 26.0% | 1.3% |
| ————— | ————— | ————— | ————— | |
| Precious Metals (US$/ounce) | ||||
| Gold | 2,659.5 | 2,037.8 | 30.5% | 21.6% |
| Silver | 30.1 | 25.3 | 19.0% | 18.7% |
| Platinum | 940.0 | 937.0 | 0.3% | -1.6% |
| Palladium | 983.0 | 1,025.0 | -4.1% | -28.9% |
| ————— | ————— | ————— | ————— | |
| Energy | ||||
| Oil (West Texas Intermediate) (US$/barrel) | 68.3 | 75.6 | -9.7% | -1.4% |
| Oil (Brent) (US$/barrel) | 74.2 | 81.7 | -9.3% | -2.3% |
| Natural Gas (US$/Metric Million British Thermal Unit) | 3.4 | 2.8 | 23.3% | -21.6% |
| ————— | ————— | ————— | ————— | |
| Bulk Commodities (US$/tonne) | ||||
| Iron ore | 106.0 | 132.5 | -20.0% | -3.6% |
| Coking coal | 205.0 | 285.0 | -28.1% | -5.4% |
| Thermal coal | 141.5 | 129.0 | 9.7% | -30.4% |
| ————— | ————— | ————— | ————— | |
| Equity Indices | ||||
| MSCI ACWI2 Select Metals & Mining Producers Ex Gold and Silver IMI Net Index (US$) | 1,300.6 | 1,287.5 | 1.0% | n/a |
| MSCI ACWI2 Select Metals & Mining Producers Ex Gold and Silver IMI Net Index (£) | 1,666.1 | 1,656.0 | 0.6% | n/a |
| MSCI3 World Energy Index (US$) | 511.3 | 459.9 | 11.2% | n/a |
| MSCI World Energy Index (£) | 669.3 | 604.4 | 10.7% | n/a |
| S&P Global Clean Energy Index (US$) | 1,132.2 | 1,276.5 | -11.3% | n/a |
| S&P Global Clean Energy Index (£) | 890.8 | 1,008.3 | -11.7% | n/a |
| ========= | ========= | ========= | ========= |
Source: LSEG Datastream and Bloomberg.
1 Average Price % Change (Average of 30/11/22-30/11/23 to 30/11/23-30/11/24).
2 Morgan Stanley Capital International All Country Weighted Index.
3 Morgan Stanley Capital International.
Portfolio performance and investment activity
While the Company produced a positive NAV Total Return (with dividends reinvested) over the year, the second half of the Company’s year started in a challenging way as continued weak economic data from China was a headwind to the commodity complex and this was eventually reflected in lower share prices across the Mining sector. As the charts contained within the Annual Report and Financial Statements show, we reduced our exposure to mining companies early in the second half of the year compared to the first half, which cushioned the impact and we shifted the mix of exposure within the Mining sector, reducing industrial metals exposure, including copper, and adding to uranium and precious metals in the second half of the year.
The biggest change in the portfolio over the course of 2024 though was the increased weight to the Energy Transition sector. A confluence of factors, including the anticipation of Trump winning the US election and his subsequent victory, caused some high-quality companies in this sector to become oversold and, in our view, attractively valued for the first time in several years. Also, the tough stance on China taken by both Parties in the US gave us conviction that the surge in US manufacturing investment spending was likely to continue and with that backdrop, we found a number of interesting Energy Transition investments related to greater electricity grid spend and data centre build outs.
The Company’s NAV total return was 15.3% for the year to 30 November 2024, which was a strong outcome compared to the performance of the three main sectors that the Company invests in as shown in the chart contained within the Annual Report and Financial Statements.
The key driver of the portfolio’s performance was stock selection, notably in the Mining and Energy Transition parts of the portfolio. On the Mining side, some of that positive stock selection came from two companies that were acquired for very different reasons, Filo Corp and Stelco. Filo Corp was acquired by BHP and Lundin Mining who wanted to secure exposure to the world class copper discovery that had been made in the Vicuña district of Argentina. Stelco was a Canadian steel company that for a number of years traded at a substantial discount to peers despite paying consistently strong and high dividends – whilst the market might not have recognised the value in the company, their peer Cleveland-Cliffs did recognise this when they acquired it in an all-cash deal at a substantial premium.
On the Energy Transition side, it was our industrial holdings with exciting energy efficiency products that were strong contributors to returns along with companies such as Schneider Electric that produce the transformers that will be critical in building out the electricity grid infrastructure required to enable the growing capacity of electrical generation.
Reflecting on some of the investment decisions that were detractors to performance during the year, a couple of items stood out. The first was a tough year for European utilities, with positions in RWE and EDP Renováveis both seeing meaningful declines in their share prices. The second challenging area was exposure to battery and battery materials companies. Whilst we have very limited exposure to electric vehicle (EV) manufacturers, the modest holdings we had in battery manufacturer Samsung SDI and lithium producer, Albemarle, both detracted from performance during the year.
Income
This year was a tougher year for income for the Company, primarily driven by lower dividend payments from a number of key Mining companies and the decisions during the year to increase the exposure to Energy Transition companies, which are usually lower dividend payers as they are often using a greater proportion of their earnings to reinvest back into growth projects.
The Traditional Energy companies in the UK, such as Shell, continued to have a more fixed dividend policy, although the increase they announced this year was more modest than in the previous two years. However, with valuations where they are, we would expect a greater emphasis on capital allocation to buybacks from Conventional Energy and Mining companies in the year ahead.
Option income remained at under 20% of total income generated by the Company during the year and at levels comparable to that in 2023. Also similar to 2023, there was a balance of call and put options written given the lack of overall market direction in our sectors and our preference to focus on stock specific opportunities. We reduced option writing in the last month or so of the year going into the US elections given it was a potentially binary event where investment outcomes were harder to predict.
Mining
This year followed a similar pattern to 2023 with the mined commodities experiencing a wide variety of returns with gold on one hand up over 30% and coking coal on the other down a little less than 30%.
The commodity prices that came under the most pressure were the steel inputs of iron ore and coking coal as weaker Chinese demand and a lack of supply disruptions, that had been a feature of recent years, caused these markets to be soft. Looking forward in these markets, the outlook is improving. For iron ore, when the price touched around US$90 per tonne in August 2024, we started to see some higher cost supply curtailed, suggesting that this could be a reasonable longer-term price for the industry. On the coking coal side, the recent sale of some key producing assets led to a more consolidated industry which will, hopefully, bring supply discipline and a more robust pricing environment.
Although the future growth in demand for many mined commodities is likely to be driven by energy transition across developed and developing countries, we cannot forget that the Chinese economy probably still remains the key driver for the Mining sector. The concerns around the health of China’s economy surged again during the summer with the China Purchasing Managers’ Index falling below 50% in May and staying below 50% through the summer. Towards the end of the third quarter there was a series of stimulus announcements from the Chinese authorities that initially caused a remarkable risk-on rally with the Chinese stock market (Shanghai Composite Index) rising almost 30% during the three weeks from the middle of September. Despite the policy support and stock market reaction, the real economy has been slower to respond, and this can be seen in the continued growth of steel exports from China with higher exports implying weaker domestic demand for steel.
One of the brighter spots in the industrial commodities was aluminium, where the price rose almost 20% over the course of the year. The demand story for aluminium for many years has been an attractive one – it is widely used in high voltage cables and thanks to better research and development, has been able to be substituted for more expensive copper in air conditioning units and even some wiring applications. Its lightweight properties have also driven demand growth from the automobile industry where it has been substituted for steel. However historically there has been more than adequate supply of aluminium to meet demand as China grew production in an almost unconstrained manner, placing new refineries and smelters close to coal fields to benefit from cheap energy. With China’s growing focus on the environment and a desire to keep the energy onshore (aluminium exports can be seen as energy exports given how energy intensive the production process is), the authorities have placed a capacity ceiling of 45 million tonnes per year on the industry. This has slowed the production growth as seen on the chart contained within the Annual Report and Financial Statements and we expect this restraint to continue. In addition to improving margins for producers in China, the restraint should limit aluminium export growth and tighten the supply-demand balance in the ex-China market, which would benefit the aluminium holdings in the portfolio such as Hydro.
The mergers and acquisition (M&A) environment continued to remain active for the Mining sector during 2024 with the headline-grabbing attempt by BHP to acquire Anglo American, which ultimately ended in no deal being consummated. This was another example of companies recognising the benefits of “buying versus building” as both the capital intensity of building new assets continue to rise and the rising risk associated with getting assets permitted and built also grinds higher. We would expect this desire by companies to consolidate the industry to continue into 2025, but it will require boards and management teams to take a long-term view. At current commodity prices and cost structures, the prices being demanded by sellers of assets look expensive, so a belief in tighter markets to come and ultimately higher commodity prices is necessary to justify most potential M&A transactions or greenfield investments.
Energy Transition
Over the past twelve months, the Energy Transition sector has continued to power ahead, with global solar panel installations expected to increase to 600GW, a rise of 35% on 2024, according to Bloomberg New Energy Finance. This compares to solar installations of 252GW in 2022, which was in itself a record year. In recent years, factors impacting on the energy transition have shifted from a focus on decarbonisation to prioritisation of energy security, reshoring of critical supply chains and we are now seeing an additional driver in the form of increasing electricity demand expectations.
The US policy in the form of the US CHIPS Act and the Inflation Reduction Act (IRA) has supported a rapid increase in corporate investment in US manufacturing of key technologies including EV battery production, leading-edge semiconductor fabrication plants, solar panel and wind turbine manufacturing. Companies supplying the necessary equipment for these facilities have benefited from increased demand and Trane Technologies, (energy efficient commercial heating, ventilation and air conditioning) and Ingersoll-Rand (energy efficient pumps and compressors) were among the top contributors to performance.
Large scale investment in the hardware required for generative artificial intelligence (AI) model training and subsequent querying has created increased demand for a number of related industries. In addition to microchips, AI data centres require specialist design and power management. Data centre and critical infrastructure design group, Vertiv Holdings and power management specialists, Schneider Electric, saw strong share price performance over the year. Supplies to electricity grid connections and power transformers including GE Vernova reported quarterly results consistently ahead of market expectations with increased orderbooks and performed strongly during the year.
Within Energy Transition, elevated interest rates, overcapacity in the solar and EV supply chains and uncertainty around the direction of US policy caused market sentiment to remain negative for parts of the renewable power sector, particularly for non-US companies, given a wide valuation differential between US and European stock markets. At a company level, given these market moves, wind turbine group, Vestas significantly underperformed during the year and detracted from returns, with the group experiencing higher costs, which prevented an awaited recovery in profit margins. European renewable utilities were sensitive to changes in interest rate expectations and underperformed following the US elections with RWE and EDP Renováveis detracting from returns. EV battery manufacturer Samsung SDI and EV semiconductor group ST Microelectronics fell during the year with EV demand growth in Europe lower than expected. EV sales globally are expected to rise c.20% in 2025, however this is skewed towards China with weaker automobile sales in Europe masking the continued increase in EV market share.
Following the US elections, there was a pullback in valuations of renewables companies. In 2016, we saw similar initial negative share price reaction to renewables, yet the sector went on to outperform over the remaining presidential term and we see stronger demand drivers for these companies today.
Whilst some policies or parts of the IRA may be changed, such as EV subsidies, lesser support at the federal level for offshore wind, or lower duration of tax credits for renewables, we do not see the core aim of reshoring of manufacturing to be reversed and we see opportunity in some of the market moves.
Traditional Energy
Oil prices traded within a US$70-US$90/barrel range for most of the year, ending towards the lower band, but a level that enables the oil & gas industry to generate significant profits. Despite the significant ongoing investment into low-carbon alternatives, the world has yet to break the link between economic growth and oil demand and the 12-month period set a new record for oil demand at 102.6 million barrels per day (source: US Energy Information Administration December 2024). In contrast, North American natural gas markets saw a distinctly looser market throughout most of 2023 and 2024 as supply growth continued well ahead of the anticipated inflection in US LNG export (thereby driving up demand). Henry Hub prices spent most of the prior two years in contango with gas production companies having to curtail significant volumes to help rebalance the market.
Oil prices were driven by several notable factors during the year. On the supply side, large new oil producing projects in Guyana and Norway, which have been under construction for several years, ramped production in 2024 and US shale oil producers led US production higher to 13.5 million barrels per day. On the demand side, global consumption has continued to increase. However, the main source of oil demand growth in recent years has been China, which saw significantly slower-than-expected growth due to lower levels of construction activity and continued substitution away from diesel and into natural gas within the heavy-duty truck sector. The International Energy Agency (IEA) revised downwards its estimate of 2024e oil demand growth expectations from China from 700,000 barrels per day to less than 200,000 barrels per day. With oil demand growth barely sufficient to absorb the new oil supply, global oil markets were well-supplied throughout the year, leading the Organisation of Petroleum Exporting Countries to delay adding back previously curtailed production to support oil prices. Despite the marked slowdown in Chinese growth the agency has been revising its expectations for 2025e demand upwards, notably in Asia ex-China.
Commodities, including oil, have long been used by investors as a hedge against increased geo-political risk and this was again evident in 2024. Houthi militant attacks on international shipping in the Red Sea during the first quarter of the year resulted in disruption to global trade routes. A majority of ships therefore diverted to taking the longer route between East and West around the Cape of Good Hope, rather than the Suez Canal route. Oil prices rose during this period, and later moved higher with escalation of events in the Middle East between Iran and Israel in October, on the risk of disruption to energy infrastructure. As risk of further escalation subsided, the Brent oil price tracked lower towards US$70 into the year end.
Energy holdings delivered a positive return in the period, modestly ahead of the benchmark. Midstream pipeline companies, including Targa Resources, which was the top contributor to returns over the year, having seen valuations increase. In our view, selected pipeline companies may benefit from the increased power demand in the US with reshoring of manufacturing trends and the build out of AI data centres. Increased demand for power in the US from hyperscalers, the large technology cloud service providers investing in AI data centres, has driven a resurgence in demand for nuclear power and a higher uranium price, which underpinned a positive contribution from Cameco. On the other hand, oil exploration and production company, Kosmos saw its shares fall on the range-bound oil price and lower than expected production from its Jubilee asset offshore Ghana.
Outlook
The economic growth outlook for China remains important for the mining sector with the country accounting for the largest part of demand for many mined materials including iron ore and copper. The incoming US administration has announced an intention to add further tariffs on goods imported from China and in order to maintain economic growth, we expect China to stimulate its domestic economy. In the past, such stimulus measures have included infrastructure and the property sectors, which may drive increased demand for certain metals. The supply of many metals remains constrained after a period of relative underinvestment in new production capacity, providing the potential for a supportive pricing outlook for mining companies.
The energy transition involves shifting from a predominantly oil & gas-based economy to lower carbon sources of energy, which are more materials intensive. The scale of the renewables industry, which continues to expand rapidly, is at a level that is already a material source of demand growth for certain metals, including copper and silver and the expected increase in power demand, from reshoring manufacturing and AI data centres will likely add to this trend. Companies within the mining sector have much stronger balance sheets today, with relatively low debt, enabling increased pricing to feed through to profits and shareholder distribution, whilst we find companies trading at attractive valuations.
The outlook for the oil and gas industry appears uncertain, with a much wider-than-usual range of potential outcomes, both positive and negative. Our base case is that new oil production meets or exceeds oil demand growth in 2025. However, the potential for a supply shock is higher-than-normal given elevated geopolitical tensions. In one of its final acts, the previous US administration introduced tighter oil-related sanctions on Russia, targeting the tankers transporting the country’s crude production and the insurers backing this so called ‘shadow fleet’. However, it remains unclear what the new US administration’s policy on Russia will be. Meanwhile, there is also the potential for the Trump administration to retighten the enforcement of sanctions against Iranian oil supply, which have been relaxed over the past 4 years (see chart contained within the Annual Report and Financial Statements). Ultimately, however, OPEC+ spare capacity at record levels means this could be used to help balance the market and effectively cap upside.
On the demand side, importantly, we are no longer seeing downgrades to estimates around demand from China (the key factor that held oil back through 2024) and in some instances, we are starting to see upgrades. Company valuations generally remain inexpensive in our view, offering investment opportunities but this uncertainty increases the need to be selective. Beyond 2025, we see demand exceeding supply, with fewer sizeable new oil production projects. Looking ahead, we believe that the duration of oil demand growth remains underappreciated and not reflected in energy company valuations today. Many energy companies are able to deliver attractive levels of cash flow generation at the expected oil price range of US$60-US$80/barrel and have strong balance sheets. The energy intensity of global economic growth is expected to increase over the coming years because of electrification, power demands of artificial intelligence, emerging market economy growth and the reshoring of supply chains, which may be supportive for natural gas and nuclear assets.
Reform of US planning regulations may further support midstream companies, whilst energy typically offers a hedge against geo-political risk and inflation.
The outlook for energy transition related companies appears exceptionally strong, however US policy uncertainty may continue to impact on market sentiment towards renewables in the near term. There is a fundamental and pressing need for increased electricity generation in the US and Europe and renewables will have to be part of that solution, due to speed to roll out and low cost, even without considering corporate decarbonisation targets. Whilst we see increased demand for combined cycle gas turbines (CCGTs) and for nuclear power, supply bottlenecks and time to build will likely drive increased demand for readily available renewable generation.
The energy transition will not follow a straight line, and we have seen challenges to market sentiment over the past year. This market caution has led to some companies trading on attractive valuations, in our view. We see several potential catalysts in Europe and in the US. The headwind of high interest rates is steadily reversing and industry destocking within the EV supply chain, which has impacted on underlying demand for semiconductors, appears to have largely finished. The new US administration may drive an acceleration of investment into all forms of energy for national security reasons (energy security, re-shoring of manufacturing of key technologies, AI data centres), whilst in Europe, tighter vehicle emission regulations may lead to an increased demand for EVs. It is possible that reform to planning may facilitate project permitting which could be a significant positive in enabling faster build out of renewable projects.
The Energy Transition is one of the key megatrends which will play out over the next 2-3 decades, although these trends will not be linear. Your Company’s portfolio, with its mandate flexibly to invest across all 3 sectors and actively to select beneficiary companies, is well positioned to take advantage of the growth this trend will deliver.
Tom Holl and Mark Hume
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
31 January 2025
Distribution of investments as at 30 November 2024
Asset allocation – Geography
| Global1 | 49.1% |
| United States | 26.2% |
| Canada | 11.2% |
| United Kingdom | 3.1% |
| Brazil | 2.8% |
| Australia | 2.1% |
| Italy | 1.9% |
| Africa | 1.8% |
| Latin America2 | 0.7% |
| Germany | 0.6% |
| Ireland | 0.5% |
1 Global relates to companies having businesses and operations in multiple countries and territories.
2 Latin America represents Argentina.
Source: BlackRock.
Asset allocation – Commodity/sub-sectors
| Mining | 40.2% |
| Traditional Energy | 30.6% |
| Energy Transition | 29.2% |
| Energy Transition | 29.2% |
| Energy Efficiency | 12.8% |
| Electrification | 8.0% |
| Renewables | 5.6% |
| Storage | 1.9% |
| Transport | 0.9% |
| Traditional Energy | 30.6% |
| Exploration & Production | 15.9% |
| Integrated | 6.4% |
| Distribution | 3.5% |
| Oil Services | 3.4% |
| Oil, Gas & Consumable Fuels | 1.4% |
| Mining | 40.2% |
| Diversified | 19.9% |
| Copper | 5.8% |
| Gold | 3.7% |
| Aluminium | 2.9% |
| Industrial Minerals | 2.3% |
| Uranium | 2.2% |
| Nickel | 1.3% |
| Steel | 1.2% |
| Metals & Mining | 0.9% |
Source: BlackRock.
Ten largest investments
Together, the Company’s ten largest investments represented 32.5% of the Company’s portfolio as at 30 November 2024 (2023: 36.3%)
1 ▲ Anglo American (2023: 65th)
Diversified mining group
Market value: £8,687,000
Share of investments: 4.6%1(2023: 0.4%)
A global mining group. The group’s mining portfolio includes bulk commodities including iron ore, manganese, metallurgical coal, base metals including copper and nickel and precious metals and minerals such as platinum and diamonds. Anglo American has mining operations globally, with significant assets in Africa and South America.
2 ▲ Rio Tinto (2023: 4th)
Diversified mining group
Market value: £8,453,000
Share of investments: 4.5% (2023: 4.4%)
One of the world’s leading mining companies. The group’s primary product is iron ore, but it also produces aluminium, copper, diamonds, gold, industrial minerals and energy products.
3 ▲ Targa Resources (2023: n/a)
Traditional energy distribution
Market value: £6,722,000
Share of investments: 3.5% (2023: n/a)
Targa Resources is a leading provider of midstream services and is one of the largest independent midstream infrastructure companies in North America.
4 ▲ Shell (2023: 5th)
Integrated oil group
Market value: £5,533,000
Share of investments: 2.9% (2023: 3.8%)
Shell is one of the largest integrated energy companies globally with five main operating segments: Integrated Gas, Upstream, Marketing, Chemicals and Products, and Renewables and Energy Solutions. The company has a high quality, gas/liquified natural gas (LNG)-weighted portfolio.
5 ▲ Vertiv Holdings (2023: n/a)
Energy efficiency
Market value: £5,474,000
Share of investments: 2.9% (2023: n/a)
Vertiv Holdings is a multinational provider of critical infrastructure and services for data centres, communication networks, and commercial and industrial environments.
6 ▲ Hydro (2023: 24th)
Aluminium mining
Market value: £5,457,000
Share of investments: 2.9% (2023: 1.6%)
Hydro is a Norwegian aluminium and renewable energy company that has 33,000 employees in more than 140 locations and 40 countries.
7 ▲ Permian Resources (2023: n/a)
Exploration & Production
Market value: £5,440,000
Share of investments: 2.9% (2023: n/a)
Permian Resources is a leading independent oil and natural gas company headquartered in Texas, USA. The group is the second largest pure-play exploration and production company in the Permian Basin.
8 ▼ Vale (2023: 3rd)
Diversified mining group
Market value: £5,316,000
Share of investments: 2.8%2(2023: 4.6%)
One of the largest mining groups in the world, with operations in 30 countries. Vale is the world’s largest producer of iron ore and iron ore pellets, and the world’s largest producer of nickel. The group also produces manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals, gold, silver, cobalt, potash, phosphates and other fertiliser nutrients.
9 ▲ EOG Resources (2023: 25th)
Exploration & Production
Market value: £5,265,000
Share of investments: 2.8% (2023: 1.6%)
EOG Resources is one of the largest crude oil and natural gas exploration and production companies in the USA with proven reserves in the USA and Trinidad.
10 ▼ Glencore (2023: 1st)
Diversified mining group
Market value: £5,110,000
Share of investments: 2.7% (2023: 4.8%)
One of the world’s largest globally diversified natural resources groups. The group’s operations include approximately 150 mining and metallurgical sites and oil production assets. Glencore’s mined commodity exposure includes copper, cobalt, nickel, zinc, lead, ferroalloys, aluminium, iron ore, gold and silver.
1 (0.0)% relates to an equity option in Anglo American.
2 1.0% relates to interest in Vale shareholder debentures.
All percentages reflect the value of the holding as a percentage of total investments.
Arrows indicate the change in relative ranking of the position in the portfolio compared to its ranking as at 30 November 2023.
Percentages in brackets represent the value of the holding as at 30 November 2023.
Investments as at 30 November 2024
| Main geographic exposure | Market value £’000 | % of investments | ||
| Mining | ||||
| Diversified | ||||
| Anglo American | Global | 8,738 | } | 4.6 |
| Anglo American Put Option 20/12/24 | Global | (51) | ||
| Rio Tinto | Global | 8,453 | 4.5 | |
| Vale | Brazil | 3,410 | } | 2.8 |
| Vale Debentures* | Brazil | 1,906 | ||
| Glencore | Global | 5,110 | 2.7 | |
| Teck Resources | Global | 4,265 | 2.2 | |
| BHP | Global | 3,470 | 1.8 | |
| Abaxx Technologies | Global | 2,387 | 1.3 | |
| ————— | ————— | |||
| 37,688 | 19.9 | |||
| ========= | ========= | |||
| Copper | ||||
| First Quantum Minerals 6.875% 15/10/27 | Global | 1,646 | } | 1.5 |
| First Quantum Minerals | Global | 1,284 | ||
| Freeport-McMoRan | United States | 2,277 | 1.2 | |
| Foran Mining | Canada | 1,732 | 0.9 | |
| Metals Acquisition | Australia | 1,444 | 0.8 | |
| Ngex Minerals | Latin America | 1,389 | 0.7 | |
| Ivanhoe Electric | United States | 1,026 | 0.5 | |
| Develop Global | Australia | 348 | 0.2 | |
| ————— | ————— | |||
| 11,146 | 5.8 | |||
| ========= | ========= | |||
| Gold | ||||
| Barrick Gold | Global | 2,050 | 1.1 | |
| Allied Gold Corporation 8.75% 07/09/2028 | Africa | 1,614 | 0.9 | |
| Wheaton Precious Metals | Global | 1,581 | 0.8 | |
| Kinross Gold | Global | 1,207 | 0.6 | |
| Newmont | Global | 577 | 0.3 | |
| ————— | ————— | |||
| 7,029 | 3.7 | |||
| ========= | ========= | |||
| Aluminium | ||||
| Hydro | Global | 5,457 | 2.9 | |
| ————— | ————— | |||
| 5,457 | 2.9 | |||
| ========= | ========= | |||
| Industrial Minerals | ||||
| Albemarle | Global | 1,637 | 0.9 | |
| Lynas Corporation | Australia | 933 | 0.5 | |
| CF Industries | United States | 924 | 0.5 | |
| Nutrien | United States | 788 | 0.4 | |
| ————— | ————— | |||
| 4,282 | 2.3 | |||
| ========= | ========= | |||
| Uranium | ||||
| Cameco | Canada | 4,210 | 2.2 | |
| ————— | ————— | |||
| 4,210 | 2.2 | |||
| ========= | ========= | |||
| Nickel | ||||
| Lifezone Metals | Global | 1,257 | 0.7 | |
| Nickel Mines | Australia | 1,051 | 0.6 | |
| ————— | ————— | |||
| 2,308 | 1.3 | |||
| ========= | ========= | |||
| Steel | ||||
| ArcelorMittal | Global | 2,203 | 1.2 | |
| Steel Dynamics | United States | 7 | – | |
| ————— | ————— | |||
| 2,210 | 1.2 | |||
| ========= | ========= | |||
| Metals & Mining | ||||
| Ivanhoe Mines | Africa | 1,777 | 0.9 | |
| ————— | ————— | |||
| 1,777 | 0.9 | |||
| ========= | ========= | |||
| Total Mining | 76,107 | 40.2 | ||
| ========= | ========= | |||
| Traditional Energy | ||||
| Exploration & Production | ||||
| Permian Resources | United States | 5,440 | 2.9 | |
| EOG Resources | United States | 5,265 | 2.8 | |
| ConocoPhillips | Global | 4,789 | 2.5 | |
| Arc Resources | Canada | 3,601 | 1.9 | |
| Tourmaline Oil | Canada | 3,584 | 1.9 | |
| Canadian Natural Resources | Canada | 3,452 | 1.8 | |
| Diamondback Energy | United States | 1,991 | 1.0 | |
| Hess | Global | 1,533 | 0.8 | |
| Kosmos Energy | United States | 637 | 0.3 | |
| ————— | ————— | |||
| 30,292 | 15.9 | |||
| ========= | ========= | |||
| Integrated | ||||
| Shell | Global | 5,533 | 2.9 | |
| ExxonMobil | Global | 4,788 | 2.5 | |
| Eni | Global | 1,883 | 1.0 | |
| Gazprom** | Russian Federation | – | – | |
| ————— | ————— | |||
| 12,204 | 6.4 | |||
| ========= | ========= | |||
| Distribution | ||||
| Targa Resources | United States | 6,722 | 3.5 | |
| ————— | ————— | |||
| 6,722 | 3.5 | |||
| ========= | ========= | |||
| Oil Services | ||||
| Gaztransport & Technigaz | Global | 2,756 | 1.5 | |
| TechnipFMC | Global | 1,812 | 1.0 | |
| Saipem | Global | 1,686 | 0.9 | |
| ————— | ————— | |||
| 6,254 | 3.4 | |||
| ========= | ========= | |||
| Oil, Gas & Consumable Fuels | ||||
| Pembina Pipeline | Canada | 2,703 | 1.4 | |
| ————— | ————— | |||
| 2,703 | 1.4 | |||
| ========= | ========= | |||
| Total Traditional Energy | 58,175 | 30.6 | ||
| ========= | ========= | |||
| Energy Transition | ||||
| Energy Efficiency | ||||
| Vertiv Holdings | Global | 5,474 | 2.9 | |
| Schneider Electric | Global | 4,321 | 2.3 | |
| Ingersoll-Rand | United States | 4,052 | 2.1 | |
| Trane Technologies | United States | 3,779 | 2.0 | |
| Analog Devices | Global | 3,186 | 1.7 | |
| Regal Rexnord | United States | 1,950 | 1.0 | |
| Kingspan Group | Ireland | 857 | 0.5 | |
| Nidec Corp | Global | 597 | 0.3 | |
| ————— | ————— | |||
| 24,216 | 12.8 | |||
| ========= | ========= | |||
| Electrification | ||||
| National Grid | United Kingdom | 4,244 | 2.2 | |
| Vistra | United States | 2,635 | 1.4 | |
| Talen Energy | United States | 2,264 | 1.2 | |
| Constellation Energy | United States | 2,210 | 1.2 | |
| NextEra Energy | United States | 1,901 | 1.0 | |
| Sempra | United States | 1,863 | 1.0 | |
| EDP Renováveis | Global | 31 | – | |
| ————— | ————— | |||
| 15,148 | 8.0 | |||
| ========= | ========= | |||
| Renewables | ||||
| GE Vernova | United States | 4,204 | 2.2 | |
| Innergex Renewable Energy | Canada | 2,025 | 1.1 | |
| SSE | United Kingdom | 1,679 | 0.9 | |
| First Solar | Global | 1,573 | 0.8 | |
| Siemens Energy | Global | 1,214 | 0.6 | |
| ————— | ————— | |||
| 10,695 | 5.6 | |||
| ========= | ========= | |||
| Storage | ||||
| Prysmian Spa | Italy | 3,618 | 1.9 | |
| ————— | ————— | |||
| 3,618 | 1.9 | |||
| ========= | ========= | |||
| Transport | ||||
| Infineon Technologies | Germany | 1,089 | 0.6 | |
| Samsung SDI | Global | 653 | 0.3 | |
| ————— | ————— | |||
| 1,742 | 0.9 | |||
| ========= | ========= | |||
| Total Energy Transition | 55,419 | 29.2 | ||
| ========= | ========= | |||
| Total Portfolio | 189,701 | 100.0 | ||
| ========= | ========= | |||
| Comprising: | ||||
| Equity and debt investments | 189,752 | 100.0 | ||
| Derivative financial instruments – written options | (51) | – | ||
| ————— | ————— | |||
| 189,701 | 100.0 | |||
| ========= | ========= |
* The investment in the Vale debenture is illiquid and has been valued using secondary market pricing information provided by the Brazilian Financial and Capital Markets Association (ANBIMA).
** The investment in Gazprom has been valued at a nominal value of RUB0.01 as secondary listings of the depositary receipts on Russian companies have been suspended from trading.
All investments are ordinary shares unless otherwise stated. The total number of holdings (including options) at 30 November 2024 was 74 (2023: 78).
There was one open option and no open futures as at 30 November 2024 (2023: one option and one future).
The equity and fixed income investment total of £189,752,000 (2023: £175,540,000) above before the deduction of the negative option valuation of £51,000 (2023: negative option valuation of £110,000 and negative futures contract valuation of £780,000) represents the Group’s total investments held at fair value as reflected in the Consolidated and Parent Company Statements of Financial Position below. The table above excludes cash and gearing; the level of the Group’s gearing may be determined with reference to the bank overdraft of £25,944,000 (2023: £17,862,000) and cash and cash equivalents of £3,714,000 (2023: £5,276,000) that are also disclosed in the Consolidated and Parent Company Statements of Financial Position. Details of the AIC methodology for calculating gearing are given in the Glossary contained within the Annual Report and Financial Statements.
As at 30 November 2024, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.
Strategic report
The Directors present the Strategic Report of the Company for the year ended 30 November 2024. The aim of the Strategic Report is to provide shareholders with the information required to enable them to assess how the Directors have performed in their duty to promote the success of the Company for the collective benefit of shareholders.
The Chairman’s Statement together with the Investment Manager’s Report and the Section 172 Statement set out how the Directors promote the success of the Company form part of the Strategic Report. The Strategic Report was approved by the Board at its meeting on 31 January 2025.
Business and management of the Company
BlackRock Energy and Resources Income Trust plc (the Company) is an investment trust company that has a premium listing on the London Stock Exchange. Its principal activity is portfolio investment and option writing. The Company’s wholly owned subsidiary is BlackRock Energy and Resources Securities Income Company Limited (together ‘the Group’). Its principal activity is investment dealing.
Investment trusts, like unit trusts and open-ended investment companies (OEICs), are pooled investment vehicles which allow exposure to a diversified range of assets through a single investment thus spreading, although not eliminating, investment risk. In accordance with the Alternative Investment Fund Managers’ Directive (AIFMD) the Company is an Alternative Investment Fund (AIF). BlackRock Fund Managers Limited (the Manager) is the Company’s Alternative Investment Fund Manager (AIFM). The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager. The Manager, operating under guidelines determined by the Board, has direct responsibility for decisions relating to the running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.
The Company delegates fund accounting services to the Manager, which in turn subdelegates these services to the Fund Accountant, The Bank of New York Mellon (International) Limited. The Company sub-delegates registration services to the Registrar, Computershare Investor Services PLC. Other service providers include the Depositary, also performed by The Bank of New York Mellon (International) Limited. Details of the contractual terms with these service providers are set out in the Directors’ Report contained within the Annual Report and Financial Statements.
Business model
The Company invests in accordance with the investment objective. The Board is collectively responsible to shareholders for the long-term success of the Company. There is a clear division of responsibility between the Board and the Manager. Matters reserved for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing, capital structure, governance, and appointing and monitoring of the performance of service providers, including the Manager. As the Company’s business model follows that of an externally managed investment trust, it does not have any employees and outsources its activities to third party service providers including the Manager who is the principal service provider.
Investment objective
The Company’s objectives are to achieve an annual dividend target and, over the long term, capital growth by investing primarily in securities of companies operating in the mining and energy sectors.
Investment policy and strategy
The Company seeks to achieve its objectives through a focused portfolio, consisting of approximately 30 to 150 securities.
Although the Company has the flexibility to invest within this range, at 30 November 2024 the portfolio consisted of 74 investments (including one open option contract), and the detailed portfolio listing is provided above.
There are no restrictions on investment in terms of geography or sub-sector and, in addition to equities, other types of securities, such as convertible bonds and debt issued primarily by mining or energy companies, may be acquired. Although most securities will be quoted, listed or traded on an investment exchange, up to 10% of the gross assets of the Group, at the time of investment, may be invested in unquoted securities. Investment in securities may be either direct or through other funds, including other funds managed by BlackRock or its associates, with up to 15% of the portfolio being invested in other listed investment companies, including listed investment trusts. In order to comply with the current Listing Rules, the Company will not invest more than 10% of its gross asset value in other listed closed-ended investment funds which themselves may invest more than 15% of their gross assets in other listed closed-ended investment funds. This restriction does not form part of the Company’s investment policy. Up to 10% of the gross assets of the Group, at the time of investment, may be invested in physical assets, such as gold and in securities of companies that operate in the commodities sector other than the mining and energy sectors.
No more than 15% of the gross assets of the Group will be invested in any one company as at the date any such investment is made and the portfolio will not own more than 15% of the issued shares of any one company, other than the Company’s subsidiary. The Group may deal in derivatives, including options and futures, up to a maximum of 30% of the Group’s assets for the purposes of efficient portfolio management and to enhance portfolio returns. In addition, the Group is also permitted to enter into stock lending arrangements up to a maximum of 33.3% of the total asset value of the portfolio.
The Group may, from time to time, use borrowings to gear its investment policy or in order to fund the market purchase of its own ordinary shares. This gearing typically is in the form of an overdraft or short-term facility, which can be repaid at any time. Under the Company’s Articles of Association, the Board is obliged to restrict the borrowings of the Company to an aggregate amount equal to 40% of the value of the gross assets of the Group. However, borrowings are not anticipated to exceed 20% of gross assets at the time of drawdown of the relevant borrowings.
The Group’s financial statements are maintained in British Pound Sterling. Although many investments are denominated and quoted in currencies other than British Pound Sterling, the Company does not intend to employ a hedging policy against fluctuations in exchange rates but may do so in the future if circumstances warrant implementing such a policy.
No material change will be made to the investment policy without shareholder approval.
Environmental, social and governance (ESG) impact
The Board’s ESG approach is set out in the Annual Report and Financial Statements. The direct impact of the Company’s activities is minimal as it has no employees, premises, physical assets or operations either as a producer or a provider of goods or services. Neither does it have customers. Its indirect impact occurs through the investments that it makes, and this is managed through BlackRock’s approach to ESG integration.
Performance
Details of the Company’s performance for the year are given in the Chairman’s Statement above. The Investment Manager’s Report above includes a review of the main developments during the year, together with information on investment activity within the Company’s portfolio.
Results and dividends
The Company’s revenue earnings for the year amounted to 3.63p per share (2023: 4.39p). Details of dividends paid and declared in respect of the year, together with the Company’s dividend policy, are set out in the Chairman’s Statement above.
Future prospects
The Board’s main focus is the achievement of an annual dividend target and, over the long term, capital growth. The future of the Company is dependent upon the success of the investment strategy. The outlook for the Company is discussed in both the Chairman’s Statement above and in the Investment Manager’s Report above.
Employees, social, community and human rights issues
The Company has no employees, and all the Directors are non-executive, therefore, there are no disclosures to be made in respect of employees. The Company believes that it is in shareholders’ interests to consider environmental, social and governance factors and human rights issues when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out in the Annual Report and Financial Statements.
Modern slavery act
As an investment vehicle the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. The Board considers the Company’s supply chain, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Directors and gender representation
The Directors of the Company are set out in the Governance structure and Directors’ biographies contained within the Annual Report and Financial Statements. All the Directors held office throughout the year with the exception of Mrs Anne Marie Cannon (who was appointed to the Board on 16 January 2024). The Board consists of two male Directors and two female Directors.
Key performance indicators
A number of performance indicators (KPIs) are used to monitor and assess the Company’s success in achieving its objectives and to measure its progress and performance. The principal KPIs are described below:
Performance
At each meeting the Board reviews the performance of the portfolio as well as the net asset value and share price for the Company and compares this to the performance of other companies in the peer group. The Company does not have a benchmark; however, the Board also reviews performance in the context of the blended performance of the MSCI ACWI Metals and Mining Index, MSCI World Energy Index and the S&P Global Clean Energy Index and a 40:30:30 composite of the three indices. The Board also monitors performance relative to a peer group of commodities and natural resources focused funds and also regularly reviews the Company’s performance attribution analysis to understand how performance was achieved. This provides an understanding of how components such as sector exposure, stock selection and asset allocation impacted performance. Information on the Company’s performance is given in the performance record contained within the Annual Report and Financial Statements and the Chairman’s Statement and Investment Manager’s Report above.
Share rating
The Board monitors the level of the Company’s premium or discount to NAV on an ongoing basis and considers strategies for managing any premium or discount. In the year to 30 November 2024, the Company’s share price to NAV traded in the range of a discount of 8.0% and 14.2% on a cum income basis. The average discount for the year was 10.8%. 9,833,697 shares were repurchased into treasury during the year at a total cost of £11,288,000 and an average discount of 10.8%. Details of shares issued or repurchased since the year end date are given in note 9 below.
Further details setting out how the discount or premium at which the Company’s shares trade is calculated are included in the Glossary contained within the Annual Report and Financial Statements.
Ongoing charges
The ongoing charges represent the Company’s management fee and all other recurring operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items, expressed as a percentage of average daily net assets. The ongoing charges are based on actual costs incurred in the year as being the best estimate of future costs. The Company’s Manager has also agreed to reduce the existing cap on ongoing charges from 1.25% to 1.15% with effect from 1 December 2024. To the extent that the Company’s ongoing charges exceed 1.15% of average net assets, the Manager will rebate a portion of the management fee to ensure they remain below 1.15%. The Board reviews the ongoing charges and monitors the expenses incurred by the Company on an ongoing basis. A definition setting out in detail how the ongoing charges ratio is calculated is included in the Glossary contained within the Annual Report and Financial Statements. The Company’s ongoing charges amounted to 1.20% for the year ended 30 November 2024 (there was no management fee rebate due for the year).
Dividend target and income generation
The level of income is considered at each meeting and the Board receives detailed income forecasts. The Board also monitors the risks and returns from option writing, and regularly reviews the Company’s levels of distributable reserves.
The table below sets out the key KPIs for the Company. These KPIs fall within the definition of ‘Alternative Performance Measures’ (APMs) under guidance issued by the European Securities and Markets Authority (ESMA) and additional information explaining how these are calculated is set out in the Glossary contained within the Annual Report and Financial Statements.
Key Performance Indicators | Year ended 30 November 2024 | Year ended 30 November 2023 |
| Net asset value total return1,2 | 15.3% | -11.8% |
| Share price total return1,2 | 14.0% | -15.2% |
| Discount at year end2,3 | 12.1% | 10.7% |
| Revenue return per share | 3.63p | 4.39p |
| Dividends per share | 4.500p | 4.425p |
| Ongoing charges2, 4 | 1.20% | 1.19% |
| ========= | ========= |
1 This measures the Company’s NAV and share price total returns, which assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary contained within the Annual Report and Financial Statements.
3 This is the difference between the share price and the cum-income NAV per share.
4 Ongoing charges represent the management fee and all other recurring operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items, expressed as a percentage of average daily net assets. The cap on ongoing charges reduced from 1.25% to 1.15% with effect from 1 December 2024.
Principal risks
The Company is exposed to a variety of risks and uncertainties. The Board has in place a robust process to identify, assess and monitor the principal risks of the Company. A core element of this process is the Company’s risk register which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the controls established for mitigation. A residual risk rating is then calculated for each risk.
The risk register is regularly reviewed, and the risks reassessed. The risk environment in which the Company operates is also monitored and regularly appraised. New risks are also added to the register as they are identified which ensures that the document continues to be an effective risk management tool.
The risk register, its method of preparation and the operation of key controls in the Manager’s and third-party service providers’ systems of internal control are reviewed on a regular basis by the Audit and Management Engagement Committee. In order to gain a more comprehensive understanding of the Manager’s and other third-party service providers’ risk management processes, and how these apply to the Company’s business, BlackRock’s internal audit department provides an annual presentation to the Audit and Management Engagement Committee Chairman setting out the results of testing performed in relation to BlackRock’s internal control processes. The Audit and Management Engagement Committee also periodically receives presentations from BlackRock’s Risk & Quantitative Analysis teams, and reviews Service Organisation Control (SOC 1) reports from BlackRock and other key service providers. The Custodian is appointed by the Company’s Depositary and does not have a direct contractual relationship with the Company.
The Board has undertaken a robust assessment of both the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risk that unforeseen or unprecedented events including (but not limited to) heightened geo-political tensions such as the war in Ukraine, high inflation and the current cost of living crisis has had a significant impact on global markets. The Board has taken into consideration the risks posed to the Company by these events and incorporated them into the Company’s risk register. Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register.
Additionally, the Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will be communicated to the Board.
Emerging risks that have been considered by the Board over the year include the impact of climate change, escalating geo-political conflict and technological advances.
The key emerging risks identified are as follows:
Climate change: Investors can no longer ignore the impact that the world’s changing climate will have on their portfolios, with the impact of climate change on returns, including climate-related natural disasters, now potentially significant and with the potential to escalate more swiftly than one is able to predict. The Board receives ESG reports from the Manager on the portfolio and the way ESG considerations are integrated into the investment decision-making, so as to mitigate risk at the level of stock selection and portfolio construction.
Artificial Intelligence (‘AI’): Advances in computing power means that AI has become a powerful tool that will impact a huge range of areas and with a wide range of applications that have the potential to dislocate established business models and disrupt labour markets, creating uncertainty in corporate valuations. The significant energy required to power this technological revolution will create further pressure on environmental resources and carbon emissions.
Geo-political risk: Escalating geo-political tensions (including, but not limited to tensions in the Middle East and the ongoing war in Ukraine, or deteriorating relations between China and the US/other countries) have a significant negative impact on global markets, with an increasing use of tariffs and domestic regulations making global trade more complex and driving economic fragmentation.
The Board will continue to assess these risks on an ongoing basis. In relation to the UK Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period.
The principal risks and uncertainties faced by the Company during the financial year, together with the potential effects, controls and mitigating factors are set out in the following table.
Investment performance
Principal risk
The returns achieved are reliant primarily upon the performance of the portfolio.
The Board is responsible for:
· setting the investment strategy to fulfil the Company’s objective; and
· monitoring the performance of the Investment Manager and the implementation of the investment strategy.
An inappropriate investment strategy may lead to:
· poor performance;
· widening discount;
· a reduction or permanent loss of capital; and
· dissatisfied shareholders and reputational damage.
The Board is also cognisant of the long-term risk to performance from inadequate attention to ESG issues, and in particular the impact of climate change. More detail in respect of these risks can be found in the AIFMD Fund Disclosures document available on the Company’s website at www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-energy-and-resources-income-trust-plc.pdf.
Mitigation/Control
To manage this risk the Board:
· regularly reviews the Company’s investment mandate and long-term strategy;
· where necessary, the Board seeks shareholder approval to both repurchase and issue shares to help control the level of discount/premium at which the shares trade. The Board also keep under review other mechanisms for reducing the discount, including the option of offering occasional cash exits at close to NAV;
· has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on;
· receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing and the rationale for the composition of the investment portfolio; and
· monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with factors specific to particular sectors, based on the diversification requirements inherent in the investment policy.
ESG analysis is integrated in the Manager’s investment process, as set out in the Annual Report and Financial Statements. This is monitored by the Board.
Income/dividend
Principal risk
The ability to pay dividends, and future dividend growth, is dependent on a number of factors including the level of dividends earned from the portfolio and income generated from the option writing strategy. Income returns from the portfolio are dependent, among other things, upon the Company successfully pursuing its investment policy.
Any change in the tax treatment of dividends or interest received by the Company including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests may reduce the level of dividends received by shareholders.
Mitigation/Control
The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting.
The Company has the ability to make dividend distributions out of special reserves and capital reserves as well as revenue reserves to support any dividend target. These reserves totalled £96.0 million at 30 November 2024.
In setting the dividend target each year, the Board is mindful of the balance of shareholder returns between income and capital.
Gearing
Principal risk
The Company’s investment strategy may involve the use of gearing, including borrowings.
Gearing may be generated through borrowing money or increasing levels of market exposure through the use of derivatives. The Company currently has an overdraft facility with The Bank of New York Mellon (International) Limited. The use of gearing exposes the Company to the risk associated with borrowing.
Gearing provides an opportunity for greater returns where the return on the Company’s underlying assets exceeds the cost of borrowing. It is likely to have the opposite effect where the return on the underlying assets is below the cost of borrowings. Consequently, the use of borrowings by the Company may increase the volatility of the NAV.
Mitigation/Control
The Company’s Articles of Association limit borrowings to an aggregate amount equal to 40% of the value of the gross assets of the Company. However, to further manage this risk the Board does not anticipate borrowings will exceed 20% of gross assets at the time of drawdown.
The use of derivatives, including options and futures has been limited to a maximum of 30% of the Group’s assets.
The Investment Manager will only use gearing when confident that market conditions and opportunities exist to enhance investment returns.
The Investment Manager reports to the Board on a regular basis the levels of gearing in place as compared to limits set by the Board under the investment policy and by the Manager as Alternative Investment Fund Manager (AIFM) under the Alternative Investment Fund Managers’ Directive, as retained and onshored in the UK (AIFMD).
The Board monitors gearing levels and will raise any queries or concerns in respect of changes in the gearing level with the Investment Manager.
Legal and regulatory compliance
Principal risk
The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments.
Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio.
Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010.
Amongst other relevant laws and regulations, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the Market Abuse Regulation, the UK Listing Rules, international sanctions and the FCA’s Disclosure Guidance and Transparency Rules.
Mitigation/Control
The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting.
Compliance with the accounting rules affecting investment trusts are also carefully and regularly monitored.
The Company Secretary, Manager and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulations. The Board and the Manager also monitor changes in government policy and legislation which may have an impact on the Company.
The Company’s Investment Manager, BlackRock, at all times complies with the sanctions administered by the UK Office of Financial Sanctions Implementation, the United States Treasury’s Office of Foreign Assets Control, the United Nations, European Union member states and any other applicable regimes.
The Market Abuse Regulation came into force on 3 July 2016. The Board has taken steps to ensure that individual Directors (and their Persons Closely Associated) are aware of their obligations under the regulation and has updated internal processes, where necessary, to ensure the risk of non-compliance is effectively mitigated.
Operational
Principal risk
The Company relies on the services provided by third parties.
Accordingly, it is dependent on the control systems of the Manager and The Bank of New York Mellon (International) Limited (who act as both Depositary, Custodian and Fund Accountant and who maintain the Company’s assets, settlement and accounting records). The Company’s share register is maintained by the Registrar, Computershare Investor Services PLC. The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of the third-party service providers.
Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption through a Global IT outage, a cyber-attack or by way of any other event leading to the disruption of the accounting, payment systems, custody records and other IT systems which prevent the accurate reporting and monitoring of the Company’s financial position and operational activities.
Inadequate succession arrangements, particularly of the Manager, could disrupt the level of service provided.
Any significant reduction in the market value of the Company, including through falls in its share price and increased buybacks may result in the Company’s size becoming unviable.
Mitigation/Control
The Fund Accountant’s and the Manager’s internal control processes are regularly tested and monitored throughout the year and are evidenced through their SOC 1 reports, which are subject to review by an Independent Service Assurance Auditor. The SOC 1 reports provide assurance in respect of the effective operation of internal controls. These reports are provided to the Audit and Management Engagement Committee.
The Company’s financial assets are subject to a strict liability regime and in the event of a loss of assets, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control.
The Board reviews the overall performance of the Manager, Investment Manager and all other third-party service providers on a regular basis.
The Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of its review of the Company’s risk register.
The Board considers the Manager’s succession plans in so far as they affect the services provided to the Company.
The Board considers opportunities to enhance the size of the Company, monitors any buy-backs, and has in place an ongoing charges cap.
Market
Principal risk
Market risk arises from volatility in the prices of the Company’s investments. The price of shares of companies in the mining, traditional energy and energy transition sectors can be volatile and this may be reflected in the NAV and market price of the Company’s shares.
The Company invests in the mining, traditional energy and energy transition sectors in many countries globally and will also be subject to country-specific risk. A lack of growth in world or country-specific industrial production may adversely affect metal and energy prices.
Companies operating within the sectors in which the Company invests will be impacted by climate change and by new legislation governing climate change and environmental issues, which may have a negative impact on their valuation and share price. Market risk includes the potential impact of events which are outside the Company’s control, including (but not limited to) heightened geo-political tensions and military conflict, a global pandemic and high inflation.
There is the potential for the Company to suffer loss through holding investments in the face of negative market movements.
Mitigation/Control
The Board considers the diversification of the portfolio, asset allocation, stock selection, and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager.
Under the Company’s investment policy, the Investment Manager has the ability to invest in energy transition stocks and is mindful of the impact of any shift in energy consumption towards less carbon intensive energy supply. This is taken into account by the Investment Manager in building a well diversified portfolio.
The Board also recognises the benefits of a closed-end fund structure in extremely volatile markets such as those experienced during the Russia-Ukraine and Middle East conflicts. Unlike open-ended counterparts, closed-end funds are not obliged to sell-down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility, restrictions and impacts on securities and markets following the Russian invasion of the Ukraine and market stress, the ability of a closed-end fund structure to remain invested for the long term enables the Portfolio Managers to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves.
The Board monitors its share register, consults regularly with shareholders and seeks to improve engagement with retail shareholders.
Financial
Principal risk
The Company’s investment activities expose it to a variety of financial risks that include interest rate risk and foreign currency risk.
The Company invests in both British Pound Sterling and non-British Pound Sterling denominated securities. Consequently, the value of investments in the portfolio made in non-British Pound Sterling currencies will be affected by currency movements.
Mitigation/Control
Details of these risks are disclosed in note 17 to the Financial Statements, together with a summary of the policies for managing these risks.
Viability statement
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve months referred to by the ‘Going Concern’ guidelines. The Board is cognisant of the uncertainty surrounding the potential duration of the conflicts in Russia-Ukraine and Middle East, its impact on the global economy and the prospects for many of the Company’s portfolio holdings. Notwithstanding these crises, and given the factors stated below, the Board expects the Company to continue for the foreseeable future and has therefore conducted this review for a period of five years. This is generally the investment holding period investors consider while investing in the sector. The Board conducted this review for the period up to the AGM in 2030.
The Board has also considered a number of other factors in its assessment, including:
· portfolio liquidity;
· setting the investment strategy to fulfill the Company’s objective; and monitoring the performance of the Investment Manager and the implementation of the investment strategy. The Board regularly reviews the Company’s investment mandate and long-term strategy; it has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports to the Board;
· the Company’s revenue and expense forecasts. The Board is confident that the Company’s business model remains viable and that there are sufficient resources to meet all liabilities as they fall due for the period under review;
· the Company’s borrowing facility and the fact that the Company continues to meet its financial covenants in respect of this facility;
· the long-term risk to performance from inadequate attention to ESG issues, and in particular the impact of climate change. ESG analysis is integrated in the Manager’s investment process. This is monitored by the Board;
· the principal risks and uncertainties as set out above and the fact that the Company has appropriate controls and processes in place to manage these and to maintain its operating model;
· the operational resilience of the Company and its key service providers and their ability to continue to provide a good level of service for the foreseeable future;
· the effectiveness of business continuity plans in place for the Company and key service providers; and
· the level of income generated by the Company and future income forecasts.
In its assessment of the viability of the Company the Directors have noted that:
· the Company predominantly invests in highly liquid, large listed companies so its assets are readily realisable;
· the Company has gearing facilities in place and no concerns around facilities, headroom or covenants;
· the Company’s forecasts for revenues, expenses and liabilities are relatively stable, it has largely fixed overheads which comprise a small percentage of net assets and ongoing charges are capped at 1.25% of average net asset value; and
· the business model should remain attractive for longer than five years unless there is significant economic or regulatory change.
The Directors have also reviewed:
· the impact of a significant fall in global commodity equity markets on the value of the Company’s investment portfolio;
· the ability of portfolio companies to pay dividends, and the Company’s portfolio yield and ability to meet its dividend target over the longer term;
· the ongoing relevance of the Company’s investment objective, business model and investment policy in the current environment; and
· the level of demand for the Company’s shares.
Based on the results of their analysis, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.
Section 172 Statement: promoting the success of BlackRock Energy and Resources Income Trust plc
The Companies (Miscellaneous Reporting) Regulations 2018 require Directors to explain in detail how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This enhanced disclosure covers how the Board has engaged with and understands the views of stakeholders and how stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board’s decisions.
As the Company is an externally managed investment company and does not have any employees or customers, the Board considers the main stakeholders in the Company to be the shareholders, key service providers (being the Manager and Investment Manager, the Custodian, Depositary, Registrar and Broker) and investee companies. The reasons for this determination, and the Board’s overarching approach to engagement, are set out in the table below.
Stakeholders
Shareholders
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board’s strategy and objectives in delivering long-term growth and income. The Chairman met with a number of significant shareholders during the year.
Manager and Investment Manager
The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management (including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to successfully deliver its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation.
Other key service providers
In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the Financial Conduct Authority (FCA) and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board relies on a diverse range of advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason, the Board considers the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact with its key external service providers and receives regular reporting from them through the Board and committee meetings, as well as outside of the regular meeting cycle.
Investee companies
Portfolio holdings are ultimately shareholders’ assets, and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship activities and receives regular feedback from the Manager in respect of meetings with the management of portfolio companies.
A summary of the key areas of engagement undertaken by the Board with its key stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company are set out in the table below.
Area of Engagement
Investment Mandate and Objective
Issue
The Board is committed to promoting the role and success of the Company in delivering on its investment mandate to shareholders over the long term. However, the Board recognises that the sectors in which the Company invests are undergoing structural changes, with a shift in the energy sector away from carbon-based energy supplies towards alternative and renewable energy sources. The extractive industries in which the companies in the Company’s investment universe operate are facing ethical and sustainability issues that cannot be ignored by asset managers and investment companies alike. More than ever, consideration of material ESG information and sustainability risks is an important element of the investment process. The Board also has responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns.
Engagement
The Board believes that responsible investment and sustainability are integral to the longer-term delivery of growth in capital and income and has worked very closely with the Manager throughout the year to regularly review the Company’s performance, investment strategy and underlying policies to ensure that the Company’s investment objective continues to be met in an effective, responsible way that is transparent to current and future investors.
In addition to six scheduled Board meetings a year, the Board holds a Strategy Day which is dedicated to an in depth review of the Company’s strategy in conjunction with key advisors including the Company’s broker, public relations and marketing teams and members of BlackRock’s portfolio management and risk analytics teams.
The Manager’s approach to the consideration of ESG factors in respect of the Company’s portfolio, as well as its engagement with investee companies to encourage the adoption of sustainable business practices which support long-term value creation, are kept under review by the Board.
The Manager reports to the Board in respect of its consideration of ESG factors and how these are integrated into the investment process; a summary of BlackRock’s approach to ESG integration is set out in the Annual Report and Financial Statements.
Impact
The portfolio activities undertaken by the Investment Manager can be found in the Investment Manager’s Report above.
The Board does not formally benchmark the Company’s performance against mining and energy sector indices because meeting a specific dividend target is not within the scope of these indices and also because no index appropriately reflects the Company’s blended exposure to the Energy (including the energy transition) and mining sectors. For internal monitoring purposes, however, the Board compares the performance of the portfolio against a bespoke composite index. The neutral sector weightings of this bespoke index are 40% Mining, 30% Traditional Energy and 30% Energy Transition, as measured (respectively) by the MSCI ACWI Select Metals & Mining Producers Ex Gold and Silver IMI Index, the MSCI World Energy Index and the S&P Global Clean Energy Index.
Details regarding the Company’s Key Performance Indicators can be found in this Strategic Report.
Management of Share Rating
Issue
The Board recognises the importance to shareholders that the market price of the Company’s shares should not trade at either a significant discount or premium to the NAV. One of the Board’s long-term strategic aspirations is that the Company’s shares should trade consistently at a price close to the NAV per share.
Engagement
The Board monitors the Company’s discount on an ongoing basis and meets with the Manager and the Company’s Broker on a regular basis to discuss methods to try to ensure that the shares trade neither at an excessive discount or premium to NAV, but as close to par as possible. A range of discount control mechanisms have been considered and the benefits and disadvantages of these have been discussed at length. The Chairman also had discussions with major shareholders during the year.
For the year under review, the Board authorised the buy back of 9,833,697 shares at a cost of £11,288,000 and at an average discount of 10.8%. Since the year end and up to 28 January 2025, the Company repurchased 1,708,000 ordinary shares for a net consideration of £2,046,000 at an average discount of 10.3%.
In addition, the Board has worked closely with the Manager to develop the Company’s marketing strategy, with the aim of ensuring effective communication with existing shareholders and to attract new shareholders to the Company in order to improve liquidity in the Company’s shares and to sustain the share rating of the Company.
Impact
The Company’s average discount for the year to 30 November 2024 was 10.8% (year to 30 November 2023: 6.4%) and as at 28 January 2025 the discount stood at 8.3%. This compares to an average discount for the AIC Commodities and Natural resources sector of 13.1% at 30 November 2024 and 12.2% at 28 January 2025.
The Company contributed during the year to a focused investment trust sales and marketing initiative operated by BIM (UK) on behalf of the investment trusts under its management. For the year ended 30 November 2024, the Group’s contribution to the consortium element of the initiative, which enables the trusts to achieve efficiencies by combining certain sales and marketing activities, represented 0.025% per annum of its net assets (£167.4 million) as at 31 December 2024, and this contribution was matched by BIM (UK). This marketing activity was one factor contributing to increased demand for the Company’s shares, enabling it to grow in size and resulting in a lower operating charges ratio and greater liquidity.
Dividend target
Issue
A key element of the Company’s investment objective is to achieve an annual dividend target. The Board is cognisant that portfolio investments with a high yield may have lower capital growth, and that seeking to ensure that any dividend target is covered by current year dividend revenue may result in a lower total return. Conversely, a move to invest a higher proportion of the portfolio in higher growth investments (including certain energy transition stocks) may result in a lower yielding portfolio.
Engagement
The Board reviews income forecasts and option writing activity in conjunction with the Manager to determine the most effective approach for meeting the dividend target whilst generating the optimal level of total return for shareholders.
The Board aims to meet the annual target dividend primarily from a mix of dividend income from the portfolio and revenue reserves, although this will be supported by the distribution of the Company’s other substantial distributable reserves (£96.0 million at 30 November 2024) if required.
Impact
The Board’s dividend target for 2024 was to declare quarterly dividends of at least 1.125 pence per share in the year to 30 November 2024, making a total of at least 4.50 pence per share for the year as a whole. The shortfall of 0.87 pence between earnings per share and the annual dividend target will be funded out of the Company’s revenue reserves and distributable reserves (£96.0 million at 30 November 2024).
The Board has decided to maintain the annual dividend target of at least 4.50 pence per share for the year to 30 November 2025.
The Company has sufficient distributable reserves to meet its current target dividend for a period of 17 years.
Service levels of third party providers
Issue
The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of service: this includes the Manager in respect of investment performance and delivering on the Company’s investment mandate; the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its maintenance of the Company’s share register and dealing with investor queries and the Company’s Broker in respect of the provision of advice and acting as a market maker for the Company’s shares.
Engagement
The Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual evaluation of the Manager’s performance, its commitment and available resources.
The Board performs an annual review of the service levels of all third-party service providers and concludes on their suitability to continue in their role.
The Board receives regular updates from the AIFM, Depositary, Registrar and Broker on an ongoing basis.
Impact
All performance evaluations were performed on a timely basis and the Board concluded that all key third-party service providers, including the Manager were operating effectively and providing a good level of service.
Board composition
Issue
The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience and skills, and that it is compliant with best corporate governance practice under the UK Code, including guidance on tenure and the composition of the Board’s committees.
Engagement
The Board reviews succession planning on an ongoing basis. A new Director, Mrs Anne Marie Cannon, was appointed in January 2024. As part of her selection process, the Nomination Committee agreed the selection criteria and the method of selection, recruitment and appointment. Board diversity, including gender, was taken into account when establishing the criteria. The services of an external search consultant, Cornforth Consulting Limited, was used to identify potential candidates.
The Board remain focused on best Corporate Governance Practice, and in particular the recommendation under the UK Code that Directors’ tenure is limited to nine years. While the Board does not have a formal limit on tenure, Carol Bell retired as a Director at the Annual General Meeting held on 15 March 2024, as her tenure exceeded nine years with effect from December 2023.
Impact
The Board appointed Mrs Anne Marie Cannon as a Director of the Company with effect from 16 January 2024. Mrs Cannon’s biography is set out in the Annual Report and Financial Statements. Details of each Director’s contribution to the success and promotion of the Company are set out in the Directors’ Report contained within the Annual Report and Financial Statements.
All Directors currently serving on the Board have tenure below the nine years maximum limit recommended under the UK Code.
The Board’s composition currently meets all targets recommended under the Parker Review and enshrined in recent changes to the FCA’s Listing Rules (which set new diversity targets and associated disclosure requirements for UK companies listed on the London Stock Exchange).
BlackRock Investment Stewardship Engagement with portfolio companies in the year ended 30 November 2024
Given the Board’s belief in the importance of engagement and communication with portfolio companies, they receive regular updates from the Manager in respect of activity undertaken for the year under review. The Board notes that over the year to 30 November 2024, 102 total company engagements were held with the management teams of 41 portfolio companies representing 68% of the portfolio by value at 30 November 2024. To put this into context, there were 74 companies in the BlackRock Energy and Resources Income Trust plc portfolio at 30 November 2024. Additional information is set out in the table below as well as the key engagement themes for the meetings held in respect of the Company’s portfolio holdings.
| BlackRock Energy and Resources Income Trust plc – year ended 30 November 2024 | |
| Number of engagements held | 102 |
| Number of companies met | 41 |
| % of equity investments covered | 55 |
| Shareholder meetings voted at | 75 |
| Number of proposals voted on | 1,010 |
| Number of votes against management | 13 |
| % of total votes represented by votes against management | 1.25 |
| ========= |
BlackRock Investment Stewardship’s benchmark policies are the foundation for the team’s voting and engagement activities. The policies – which are comprised of published BlackRock Investment Stewardship Global Principles, regional voting guidelines, and engagement priorities – take a financial materiality-based approach and are focused solely on advancing clients’ financial interests. The policies provide clients, companies, and other external stakeholders, visibility and clarity into the core elements of corporate governance that guide BlackRock Investment Stewardship’s program globally and within each regional market every year.
BlackRock Investment Stewardship’s benchmark policies are reviewed annually by BlackRock Investment Stewardship and the BlackRock Investment Stewardship oversight and advisory committees, which are comprised of BlackRock senior executives with relevant experience and oversight. The policies are updated as necessary to reflect changes in market standards, evolving governance practices, and insights gained from multiyear engagements.
BlackRock Investment Stewardship does not act collectively with other shareholders or organizations in voting shares. Instead, it makes decisions on how to engage companies and how to vote proxies independently, based solely on its professional assessment of what is in the long-term financial interests of BlackRock’s clients.
The BlackRock Investment Stewardship Global Principles, regional voting guidelines, and engagement priorities are all available here: https://www.blackrock.com/corporate/insights/investment-stewardship/blackrock-investment-stewardship.
BlackRock Investment Stewardship’s five engagement priorities are: board quality and effectiveness; strategy, purpose, and financial resilience; incentives aligned with financial value creation; climate and natural capital; and company impacts on people. The BlackRock Investment Stewardship engagement priorities reflect the themes on which the team most frequently engages companies, where they are relevant, as these can be a source of material business risk or opportunity.
A detailed approach to the team’s engagement priorities is available here: https://www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities-final.pdf.
BlackRock Investment Stewardship#
BlackRock Investment Stewardship (BIS) is responsible for engagement and voting in relation to clients’ assets managed by certain index equity portfolio managers. The BlackRock Investment Stewardship team takes a long-term approach in its stewardship efforts, reflecting the investment horizons of the majority of BlackRock’s clients. BlackRock Investment Stewardship’s activities include engaging with companies, proxy voting on clients’ behalf, contributing to industry dialogue on stewardship, and reporting on its activities. These activities are the main components of the stewardship toolkit and are performed all year long. BlackRock Investment Stewardship aims to take a globally consistent approach, while recognizing the unique markets and sectors in which companies operate.
# As of 1 January 2025, BlackRock’s stewardship policies are developed and implemented by two independent, specialist teams, BlackRock Investment Stewardship (BIS) and BlackRock Active Investment Stewardship (BAIS). While the two teams operate independently, their general approach is grounded in widely recognized norms of corporate governance and shareholder rights and responsibilities. BIS is responsible for engagement and voting in relation to clients’ assets managed by certain index equity portfolio managers. Approximately 90% of BlackRock clients’ public equity assets under management are held in index strategies, as of 30 September 2024. BAIS partners with BlackRock’s active investment teams on company engagement and voting in relation to their holdings.
Environmental, Social and Governance Approach
The Board’s approach
Environmental, social and governance (ESG) issues can present both opportunities and risks to long-term investment performance. The Company’s investment universe comprises sectors that are undergoing significant structural change and are likely to be highly impacted by increasing regulation as a result of climate change and other social and governance factors. Your Board is committed to ensuring that we have appointed a manager that integrates ESG considerations into its investment process and has the skill and vision to navigate the structural transition that the Company’s investment universe is undergoing.
The Board believes multi-year engagement with management is, in most cases, the most constructive way of building our understanding of a company’s approach to addressing material business risks and opportunities. Engagement can lead to stronger relationships with companies and more constructive outcomes for shareholders and businesses alike.
More information on BlackRock’s global approach to ESG integration, as well as activity specific to the BlackRock Energy and Resources Income Trust plc portfolio, is set out below. BlackRock has defined ESG integration as the practice of incorporating financially material ESG information and consideration of sustainability risks into investment decisions in order to enhance risk-adjusted returns. ESG integration does not change the Company’s investment objective or constrain the Investment Manager’s investable universe and does not mean that an ESG or impact focused investment strategy or any exclusionary screens have been or will be adopted by the Company. Similarly, ESG integration does not determine the extent to which the Company may be impacted by sustainability risks. More information on sustainability risks may be found in the AIFMD Fund Disclosures document of the Company available on the Company’s website at www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-energy-and-resources-income-trust-plc.pdf.
The Company does not meet the criteria for Article 8 or 9 products under the EU Sustainable Finance Disclosure Regulation (“SFDR”) and the investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities.
BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the Sustainability Accounting Standards Board provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the Task Force on Climate-related Financial Disclosures (TCFD) provides a valuable framework. BlackRock recognises that reporting to these standards requires significant time, analysis, and effort. BlackRock’s 2023 TCFD report can be found at www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2023-blkinc.pdf.
BlackRock’s approach to ESG integration
BlackRock believes that sustainability risks including climate risk are investment risks. As a fiduciary, we manage material risks and opportunities that could impact portfolios. Sustainability can be a driver of investment risks and opportunities, and we incorporate them in our firm wide processes when they are material. This in turn (in BlackRock’s view) is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade. BlackRock believes that carbon-intensive companies will play an integral role in unlocking the full potential of the energy transition, and to do this, they must be prepared to adapt, innovate and pivot their strategies towards a low carbon economy.
BlackRock incorporates into its firmwide processes relevant, financially material information, including financially material data and information related to ESG. BlackRock’s investment view is that doing so can provide better risk-adjusted returns for its clients over the long term.
BlackRock’s clients have a wide range of perspectives on a variety of issues and investment themes, including sustainable and low-carbon transition investing. Given the wide range of unique and varied investment objectives sought by its clients, BlackRock’s investment teams have a range of approaches to considering financially material E, S, and/or G factors. As with other investment risks and opportunities, the financial materiality of E, S and/or G considerations may vary by issuer, sector, product, mandate, and time horizon. Depending on the investment approach, this financially material E, S and/or G data or information may help inform due diligence, portfolio or index construction, and/or monitoring processes of client portfolios, as well as BlackRock’s approach to risk management.
BlackRock’s ESG integration framework is built upon its history as a firm founded on the principle of thorough and thoughtful risk management. Aladdin, BlackRock’s core risk management and investment technology platform, allows investors to leverage financially material E, S and/or G data or information as well as the combined experience of BlackRock’s investment teams to effectively identify investment opportunities and investment risks.
BlackRock’s heritage in risk management combined with the strength of the Aladdin platform enables BlackRock’s approach to ESG integration.
BlackRock structures its approach around three main pillars: investment processes, material insights and transparency. These pillars underpin ESG integration at BlackRock and they are supported by equipping BlackRock employees with investment relevant E, S and/or G data, tools, and education.
More information in respect of BlackRock’s approach to ESG integration can be found at https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pdf.
BIS benchmark policies
BlackRock Investment Stewardship’s benchmark policies, and the vote decisions made consistent with these policies, take a financial materiality-based approach and are focused solely on advancing clients’ financial interests. BlackRock Investment Stewardship’s benchmark policies – comprised of the BlackRock Investment Stewardship Global Principles, regional voting guidelines, and engagement priorities – apply to clients’ assets invested through index equity strategies and provide guidance on BlackRock Investment Stewardship’s position on common corporate governance matters. BlackRock Investment Stewardship takes a globally consistent approach, while recognizing the unique markets and sectors in which companies operate.
More detail in respect of BIS reporting can be found at: https://www.blackrock.com/corporate/insights/investment-stewardship/blackrock-investment-stewardship.
Global principles
The BIS Global Principles reflect BIS’ views on certain globally applicable fundamental elements of governance that contribute to a company’s ability to create long-term financial value, anchored in transparency and accountability. The Global Principles are available on BIS’ website:https://www.blackrock.com/corporate/literature/fact-sheet/blkresponsible-investment-engprinciples-global.pdf.
Regional voting guidelines
The BIS regional voting guidelines provide context on how the Principles inform BIS’ voting decisions in relation to common ballot items for shareholder meetings in those markets.
BIS’ regional voting guidelines are available on its website at: https://www.blackrock.com/corporate/insights/investment-stewardship/blackrock-investment-stewardship#stewardship-policies.
Engagement priorities
The BIS engagement priorities are the five themes on which BIS most frequently engages with companies, where they are relevant and a source of material business risk or opportunity. The engagement priorities are available on BIS’ website: https://www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities-final.pdf.
The above forms part of the Strategic Report.
By order of the Board
GRAHAM VENABLES
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
31 January 2025
For more information on BlackRock Energy and Resources Income Trust and how to access the opportunities presented by the energy and resources markets, please visit www.blackrock.com/uk/beri
