There is no guarantee that they will receive back what they invested.

The BlackRock Energy and Resources Income Trust (BERI) is a specialist mining and energy investment trust focused on three core areas – renewable energy, traditional energy, and mining. We see pockets of strength in each of them over the next several months, but there are nuances between them all and selectivity is key.

Investing in renewables

The energy transition has been a tougher space lately. Hydrogen-reporting-heavy sectors: The share prices of many energy transition companies boomed during the pandemic, leaving fat valuations. Many companies have also been gripped with concerns about rising development costs, fuelling stalled projects. An adjustment occurred in 2023, and prices are lower now and more realistic.

At the same time, the demand for renewable energy remains strong as its costs fall and social and regulatory pressures mount to do something about climate change. Shifting from the incumbent fossil fuels to renewable fuels is increasingly attractive — and practical — for companies and households. By 2030, renewables will account for approximately 50% of the global electricity mix.

Of course, some governments are reducing climate ambitions, but the shift to renewables remains the leading edge of regulation and government spending, as evidenced by sweeping initiatives like the EU Green Deal and the Inflation Reduction Act. Despite some minor setbacks, the majority of individual governments globally are still behind the transition.

Money transfer from mining and energy investments

One thinks of people working in the mining and energy sectors as at risk due to the move to renewables. In both sectors, there is still underinvestment and new supply continues to lag demand, which has proven resilient, despite China’s slow re-opening. Robust US growth has made up for it at least somewhat.

The other energy side, US shale production, is proving to be much more resilient than our initial market view. Russian output has also surprised by its strength. But there has been a genuine constraint in reinvestment elsewhere in energy markets. Consequently, US strategic petroleum reserves and spare capacity are at multi-year lows.

It is becoming apparent that governments around the globe won’t meet their renewable energy goals without investing in some of the commodities providing the means to make that shift, steel, nickel, and copper among them. And this is where BERI is targeting the mine portion of the portfolio.

Supply is still tight, and the mining companies have good capital discipline. That is helping to prop up prices. Some of these mines haven’t been reinvested in, which is an issue. It can take 20 years for supply, which is in a tight supply environment, to come on stream. The mining companies have paid down debt and emphasized capital discipline in recent years. These assets are throwing off significant cash flow, which is being returned to shareholders through dividends and share buybacks.

This year won’t be easy. Expect some volatility around underlying commodity prices and on the energy transition side. But there are powerful tailwinds behind these sectors and ongoing regulatory support. We do get some volatility over the year, but exciting opportunities for BERI, particularly given its ability to invest flexibly across the energy transition, traditional energy, and mining sectors.