One of the biggest investment themes during this (or any) century has to be the energy transition. The amount of global investment needed runs into the trillions of dollars. Therefore, I reckon it could be a fruitful area to try and secure rising passive income.
I’m particularly bullish on the mining sector over the next couple of decades. Robust sources of demand for mined metals are emerging as a result of the global transition to lower carbon energy sources.
However, new mines are a rarity as permits become harder to secure. So, many experts see a huge supply-demand imbalance on the horizon, and this could see commodity prices rising higher alongside profits.
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In my eyes, one great way to play this potential long-term trend is through BlackRock World Mining Trust (LSE:BRWM).
A diversified portfolio
As the name suggests, this investment trust is invested in mining assets around the world. It holds over 50 different stocks and its largest positions are in BHP Group, Glencore, and Rio Tinto.
At 21% of assets, copper is a key theme in the portfolio. Massive amounts of copper will be needed for the electrification of the planet. So it’s due to play a key role in enabling the energy transition.
Another key sector focus I like here is gold, which in December made up almost 15% of assets via holdings like Barrick Gold and Wheaton Precious Metals.
The yellow metal famously acts as a safe haven for investors during troubled times. Therefore, it’s no surprise to see it at $2,000 an ounce nowadays. Ongoing geopolitical tensions and eye-watering levels of sovereign debt might see it rise even higher.
Short-term pain
The trust’s share price has fallen around 30% over the past year. This reflects issues in China and anaemic economic growth elsewhere.
In China, we’ve just seen the liquidation of debt-laden property giant Evergrande. It had more than $300bn (£236bn) of debt and we don’t know the knock-on effects yet. There’s a risk that commodity demand could be sluggish in the People’s Republic for some time.
That said, the government reportedly has a huge stimulus package ready, and this could help.
Long-term structural demand
There are other sources of demand in the here and now, though. For example, the massive US Inflation Reduction Act involves $750bn in new spending and tax incentives, with the advancement of clean energy one of its main goals.
Also, there’s Fit for 55, the EU’s target of reducing net greenhouse gas emissions by at least 55% by 2030.
Now, mining stocks are notoriously cyclical. That is, they oscillate with global supply and demand.
But with the massive investments expected during the energy transition, there’s a chance demand could become structural rather than cyclical. And miners’ share prices may well move much higher to reflect this.
Generating passive income
So what about passive income then?
Well, the dividend yield currently stands at 7.5%. At today’s share price of 535p, that means I’d need to spend about £13,400 on 2,504 shares to generate £1,000 a year in passive income.
This assumes the dividend yield is met, which isn’t guaranteed. But the diverse portfolio and strong sector tailwinds make me think this is an excellent long-term pick for passive income generation.
