There aren’t many parts of the stock market that have been immune to the mass sell-off in 2022 so far. Exceptions include defence firms, some big oil stocks and miners. It’s the last of these that I’m looking at today via one particular, high-performing investment trust.
Surging in value
The Blackrock World Mining Trust (LSE: BRWM) has climbed 30% year-to-date. Contrast that with the 5% loss in the FTSE 100 and I wouldn’t begrudge existing holders feeling just a little bit smug.
What makes this performance particularly noteworthy for me is that some of the biggest holdings in the former also feature in the latter. Top-tier mining titans such as Rio Tinto, Anglo American and Glencore all occupy spots in the BRWM portfolio. If anything this demonstrates just how poorly the majority of the UK’s biggest companies have fared over the last few months.
Recent positive momentum has largely been the result of Western countries giving Russian metal producers a wide berth (thus pushing metal prices higher). Even so, the performance has been impressive for a while. Since March 2017, this investment trust has returned almost 120%. That’s before adding in the dividends that will have helped compound value even more.
Should I buy this investment trust now?
Yet whether I add this trust to my own portfolio now is not quite the ‘no brainer’ it first appears to be.
Sure, many of its attractions remain. It offers exposure to the biggest mining stocks around without the added risk that comes with buying shares in individual companies.
Regardless of what happens next in Ukraine, one can also speculate that the outlook for mining looks favourable. The switch to renewable energy sources will lead to increased demand for nickel, copper and a host of other important metals in the years ahead.
As already mentioned, there’s also a dividend stream to keep me happy if looking for passive income. This might not be as high as that offered by an individual company. However, this could be considered a reasonable sacrifice for having my money spread across multiple businesses, metals and geographies.
Reasons to be wary
On the other hand, I might argue that the worst time to buy commodity-focused funds is when they’re firmly in favour. If there’s a resolution to the conflict as we all ardently hope, this investment trust’s momentum could easily (and quickly) slip into reverse. Still, that’s not necessarily a problem if I’m looking to hold my stake for a good few years.
But there are other potential drawbacks. Companies responsible for digging things up have very little control over prices. I simply need to look back at how BRWM performed during the financial crisis to appreciate how much of a rollercoaster ride investing in this space can be. The period between 2011 and 2016 wasn’t great either. Mining is also expensive, potentially dangerous and environmentally problematic.
A final consideration is the costs involved. The 0.9% ongoing charge isn’t ridiculously high, but it will inevitably reduce any profit I make.
My verdict
On balance, I believe that BRWM is a worthy candidate for my own portfolio and a useful hedge against further market volatility. That said, I do wonder if the ‘smart money’ has already been made. No share price surges forever.
