# BlackRock Energy and Resources Income Trust: Energy markets – the right opportunity at the right time

- Link: https://www.directorstalkinterviews.com/blackrock-energy-and-resources-income-trust-energy-markets-the-right-opportunity-at-the-right-time/4121029761
- Published: 2021-10-26T07:35:34+01:00
- Author: Amilia Stone

Commodity markets are subject to a myriad of different forces. It is important not
to make assumptions anchored on historical norms, says Mark Hume, Co-Portfolio Manager
of the **BlackRock Energy and Resources Income Trust plc** ([LON:BERI](https://www.directorstalkinterviews.com/company/blackrock-energy-and-resources-income-trust-plc/beri.l)).

**Capital at risk. **The value of investments and the income from them can fall 
as well as rise and are not guaranteed. Investors may not get back the amount originally
invested.

The recent surge in natural gas prices has created chaos: from disruption in UK 
meat supplies, to higher electricity prices, to rising travel costs. For investors,
it is also a reminder that there are multiple drivers for energy markets and multiple
industries that depend on them. To our mind, this argues for a flexible approach.

There has been a significant focus on climate change and the need to decarbonise
industries. The energy transition has three powerful elements creating long-term
momentum – regulation, society and economics. On regulation, we believe it is likely
to tighten faster than many have predicted as governments across the world strive
to achieve ambitious net zero goals.

**Growth in renewables**

Societal expectations are also driving change. People are increasingly making consumer
choices based on carbon impact and there is real pressure on policymakers and business
leaders to bring about change. Eventually, however, it will come down to economics.
We believe technology will drive down the cost of renewables to increasingly competitive
levels. For example, we see the amount of installed wind power likely to double 
between 2020 and 2030, which will create huge economies of scale.

In this way, the growth trajectory of renewables – plus associated areas such as
energy efficiency and clean transportation – seems assured. The question is where
this leaves more traditional forms of energy. By rights, in this powerful move to
renewables, prices shouldn’t be rising for natural gas or oil, but the reality is
more complex.

**‘Legacy’ commodities**

It takes time to make the switch to renewables. The recent spike in natural gas 
prices was a result of increased demand and tight supply. An extended cold period
across the northern hemisphere earlier this year meant less gas was stored in summer
than normal, leaving less supply to meet winter demand. Prices could rise even higher
from here unless supply comes on stream^(1).

In the oil markets, it is also possible that demand could substantially outstrip
supply in the short term. Companies are generally not investing in new oil supply,
preferring to focus investment on alternative energies – discipline is now a reality,
with US producers reinvesting just 50-55% of underlying cashflow year-to-date compared
with prior decade highs of over 150%. Equally, equity and debt markets are no longer
willing to support investment in new supply. In previous periods of high oil prices,
supply has been brought on stream to help meet demand. This time, prices could simply
spike higher.

From an investment point of view, this creates opportunities. The legacy energy 
companies have been unpopular and generally trade cheaply to their peers. These 
companies also have a place in the energy transition, with many of them important
investors in renewable fuels and infrastructure.

**Mixed picture in mining**

It is a similar picture in the mining sector, where investors need to be nuanced
about the fortunes of individual commodities. For example, iron ore demand looked
set to benefit from the vast global infrastructure boom, but has recently seen prices
fall because of falling demand from China – a timely reminder that analysing the
current baseload demand is as important as understanding the sources of future demand
growth. It is vitally important to retain flexibility as the market changes.

That said, the sector as a whole is very different to previous cycles, which have
tended to end with over-supply as companies embark on spending binges. This time
round, we see significant capital discipline in the mining sector, with a rock-solid
commitment not to repeat past mistakes. This is helping ensure that the companies
are delivering record dividends and cash flows. In general, the sector is in good
health.  

The move to decarbonise the global economy is a vast, multi-layered change. The 
fortunes of the various participants – and the commodities on which they rely – 
will ebb and flow. As investors, we need to be flexible and alert to these changes.
In the longer term, we expect that more and more of our portfolio will be in post-
transition companies, but in the meantime, we continue to look across the energy
complex to find the right opportunity at the right time.

**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](https://www.blackrock.com/uk/individual/products/investment-trusts/our-range/blackrock-energy-and-resources-income-trust/trust-information?siteEntryPassthrough=true&cid=aff:investmenttrusts2020:beri:directorstalk:link)**

This material is not intended to be relied upon as a forecast, research or investment
advice, and is not a recommendation, offer or solicitation to buy or sell any securities
or financial product or to adopt any investment strategy. The opinions expressed
are as of October 2021 and may change as subsequent conditions vary.

Source:
^(1)CNBC, Sep 2021

**Risk Warnings**

Past performance is not a reliable indicator of current or future results and should
not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments
to diminish or increase. Fluctuation may be particularly marked in the case of a
higher volatility fund and the value of an investment may fall suddenly and substantially.
Levels and basis of taxation may change from time to time.

**Trust Specific Risks**

Exchange rate risk: The return of your investment may increase or decrease as a 
result of currency fluctuations.

Emerging markets: Emerging market investments are usually associated with higher
investment risk than developed market investments. Therefore, the value of these
investments may be unpredictable and subject to greater variation.

Mining investments: Mining shares typically experience above average volatility 
when compared to other investments. Trends which occur within the general equity
market may not be mirrored within mining securities.

Gearing risk: Investment strategies, such as borrowing, used by the Trust can result
in even larger losses suffered when the value of the underlying investments fall.

**Important Information**

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated
by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London,
EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394.
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BlackRock has not considered the suitability of this investment against your individual
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please read the fund specific risks in the Key Investor Document (KID) which gives
more information about the risk profile of the investment. The KID and other documentation
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Net Asset Value (NAV) performance is not the same as share price performance, and
shareholders may realise returns that are lower or higher than NAV performance.

The BlackRock Energy and Resources Income Trust plc currently conducts its affairs
so that its securities can be recommended by IFAs to ordinary retail investors in
accordance with the Financial Conduct Authority’s rules in relation to non-mainstream
investment products and intends to continue to do so for the foreseeable future.
The securities are excluded from the Financial Conduct Authority’s restrictions 
which apply to non-mainstream investment products because they are shares in an 
investment trust.

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for its own purpose. The results of such research are being made available only 
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or invitation to anyone to invest in any BlackRock funds and has not been prepared
in connection with any such offer.

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ID: MKTGH1021E/S-1864430

**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](https://www.blackrock.com/uk/individual/products/investment-trusts/our-range/blackrock-energy-and-resources-income-trust/trust-information?siteEntryPassthrough=true&cid=aff:investmenttrusts2020:beri:directorstalk:link)**

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