By Frank Buhagiar

BlackRock Energy and Resources Income’s (BERI) double-digit returns

BERI outperformed over the full year: +15.3% net asset value (NAV) per share return and +14% share price return both easily ahead of the blended comparator index – 40% MSCI ACWI Select Metals & Mining Producers Ex Gold and Silver IM (Mining), 30% MSCI World Energy Index (Traditional Energy) and 30% S&P Global Clean Energy Index (Energy Transition). For the record, the comparator index could only manage +0.5%. M&A within the mining portfolio cited as one of the reasons behind the outperformance. The strong showing no outlier either: +125% NAV return over 5 years compared to the +81.5% net total return of the MSCI ACWI Select Metals & Mining Producers Ex Gold and Silver IMI Index and +71.4% net total return of the MSCI World Energy Index.

Chairman Adrian Brown highlights “the flexibility of the Company’s investment mandate with the ability to shift exposure between Mining, Traditional Energy and Energy Transition sectors”. Helpfully, “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”. Sounds like BERI has got it all covered. Shares, which have had a strong run over the past year, took a pause for breath though, finishing the day largely unchanged at the 120p level.

Winterflood: “Stock selection contributed to relative performance. Top contributor was pipeline company Targus Resources, driven by expected power demand uplift from AI data centres. Nuclear energy benefitted from the same trend, with Cameco contributing. Traditional Energy was 31% of NAV. M&A (Filo Corp, Stelco) drove performance in Mining (40% of NAV) segment of the portfolio, while weak demand for commodities from China detracted. Key contributors to Energy Transition sleeve (29% of NAV) were industrials manufacturing energy efficiency products and electricity grid infrastructure equipment suppliers.”

JPMorgan Emerging Europe, Middle East & Africa (JEMA) outperforms too

JEMA, another to outperform and another to clock up double-digit returns for the year: NAV total return of +13.6% compared to the S&P Emerging Europe, Middle East & Africa’s +11.9%. Good stock selection, a key contributor to the outperformance. As for the share price, don’t be fooled by the +0.9% total return for the year into thinking performance was pedestrian. Far from it: over the period, 31 October 2024 to 31 January 2025, the share price oscillated between 120.5p and 244.0p. Chairman Eric Sanderson and the Board believe this “is due to the uncertainty about the values attaching to our Russian shareholdings.” As the investment managers note “the Company’s Russian holdings continue to be subject to strict sanctions, and their valuations have been discounted accordingly.” Salvaging any value from these would be something of a bonus then.

Those Russian holdings, which are subject of ongoing litigation in the courts, of course, a legacy of the previous Russian-focused strategy. As Sanderson points out, very much a different strategy these days “The Company continues to invest in higher quality companies, with a tilt towards value and income and a focus on maximising total return for shareholders. The portfolio’s geographical focus is on Saudi Arabia, South Africa and the United Arab Emirates, which at the year end represented 21.6%, 17.0% and 14.4% of the portfolio respectively.” And the investment managers believe “The portfolio will continue to evolve over coming years as our target markets develop and deepen”. With the Russian court case approaching, some investors appear to have taken some money off the table, for now at least – share price finished the day 5p lower at 204p.

Numis: “Whilst it is positive to see a period of outperformance, we suspect that investors will be more focussed on the status of the Russian holdings, which continue to be held at a nominal value. We note there has been some progress with the sale of one Russian holding, Nebius (Yandex), following its sole listing on Western exchanges, although the Board emphasises the unlikeliness of this being the case for further holdings in the near future, whilst their remains uncertainty with respect to an appeal related to VTB’s court proceedings against JPMorgan entities.”

European Opportunities Trust (EOT) looks forward to being vindicated

EOT can’t make it a hat trick of outperformers after NAV total return came in at -8.4% for the half year. That compares to the MSCI Europe Total Return Index’s -3.3% (sterling). At -10.6%, the share price fared worse. Weakness among the fund’s largest holdings, specifically previous high-flier Novo Nordisk, blamed as well as “our ‘style bias’” towards investing in “innovative, world-leading companies in other sectors”. Longer term, the tables are turned: the +10.5% annualised NAV total return since launch, almost double the benchmark’s +5.8%. Still, Chair Matthew Dobbs is not hiding behind that long-term track record “the results and our returns in recent years are clearly disappointing. Our Investment Manager pursues a differentiated, high conviction approach to investment and we, as a Board, along with the team at Devon are fully committed to returning the Company to its former ranking at the head of its peer group.”

Investment manager Alex Darwall sees plenty of reasons why the portfolio’s holdings will come good. Firstly, there’s valuation “We believe that our portfolio is better value than at any time since 2017.” Then there’s earnings “Our earnings forecasts for the portfolio companies are markedly higher than those projected for the wider market.” As for balance sheets, EOT’s companies “have less debt than most European listed companies”. And at some point, the macroeconomic environment is expected to become supportive of the fund’s strategy which is “to identify ‘winners through the cycle’, a strategy that has been thwarted somewhat by the huge money printing programmes of the COVID era. The extended business cycle will turn down at which point our companies’ earnings resilience will be clear.” And when it does “Our healthcare, technology and payments companies should all make good progress. We remain confident that our strategy of picking companies that compete and succeed on the world stage will be vindicated.” Shares were up 4p to 872p – perhaps investors thinking vindication will come sooner rather than later.

Winterflood: “Board has proposed to make additional tender offer for up to 25% of shares at 2% discount to NAV, expected to take place in Q2 2025. Key (performance) detractors included Novo Nordisk, Edenred, Dassault Systèmes, Infineon Technologies and Worldline. Performance also negatively impacted by EOT’s style bias, with no exposure to Financials, which was the best performing sector in the index. Further, performance also suffered from outflows from European equities.”