Broker Canaccord Genuity has heavily criticised BlackRock’s World Mining trust claiming a “horrific” year has “damaged” the credibility of its manager and board.
Alan Brierley, director on the broker’s investment companies team, said the trust’s recent results “confirmed a truly horrific year” for the second time in recent years.
“[The] tide has gone out and we believe the experience has damaged the credibility of both board and manager, while the longer-term record leaves the sub-contraction argument ringing hollow,” Mr Brierley said.
The £530m trust has struggled recently, with large falls in the oil price exacerbating the fallout from one of its holdings, London Mining, falling into administration.
Mr Brierley noted that since the beginning of 2011, the shareholder total return had lagged the FTSE All Share index total return by 70 per cent.
He added he was not confident about the trust’s outlook for the years ahead despite its annoncement last week of a new co-manager after one of the incumbents Catherine Raw announced her forthcoming departure.
In its annual results the chairman of the board on the trust, Anthony Lea, apologised for the trust’s performance last year, particularly the steep writedown it took from London Mining.
He said: “On behalf of my fellow directors, I should like to offer our most sincere regret.
“We are working closely with BlackRock to ensure that the company continues to employ, and refine on an ongoing basis, robust diligence and supervisory processes designed to minimise the risk of such issues arising in the future.”
In the annual report the board also announced the decision to cut the trust’s fees. However, Mr Brierley said the cut did not go far enough.
“We are disappointed to see that the fee will only be cut from 1.3 per cent of the gross asset value (GAV) to 1.2 per cent on the first £500m of GAV, 1 per cent on the next £500m and 0.85 per cent thereafter,” he said.
“Assuming total assets stay at current levels; these changes would represent a reduction in the annual fee of just 12.5 basis points.
“In addition, the company has continued to use gross assets; we estimate that circa 15 per cent of investment companies use GAV when calculating fees. To be candid, we don’t think the performance record justifies such fees.”
In terms of his recommendation for the trust, Mr Brierley noted the manager’s tone had changed from “cautious optimism” to believing there would soon be a “far more supportive market” for the trust towards the end of the decade.
“Given the underperformance of both the asset class and the manager, maybe this change is the final piece of the jigsaw for the contrarian investor,” Mr Brierley said.
“Looking forward, the global macro outlook and strengthening dollar do little to fill us with confidence and we continue to fear the commodity experience has been the canary in the coalmine.