BlackRock Energy and Resources Income Trust plc

00:00:05:29 - 00:00:25:27
Unknown
Thank you very much everybody for attending, the even greater number of people here. This year must be a reflection of the presentation and Q&A last year, and not at all a reflection of the high quality refreshments that we provided at lunch last year, which seemed to go down well. And it looks like we're going to lay on the same this year.

00:00:25:27 - 00:00:49:18
Unknown
So I hope you enjoy that, and Charlie and I and the board look forward to taking questions in a formal manner after the presentation. But, perhaps even more interestingly, in an informal manner over lunch afterwards, where we can, hopefully have some good discussions. So just a quick reminder, you know, of the objectives of the trust, you know, which is to achieve our annual dividend target.

00:00:49:21 - 00:01:10:00
Unknown
You know, we're currently paying one and a quarter pence per share. I'm sure we can discuss more of that in the Q&A in terms of how that is achieved - especially in markets which are very volatile, and why the income sources of the trust are also varying quite rapidly through time.

00:01:10:03 - 00:01:33:21
Unknown
But also importantly to deliver an element of capital growth. And that was really, you know, the thinking behind introducing, the energy transition piece into the trust, back, you know, sort of six years ago now. And not only is it adding an element of growth, but it's adding an element of diversification to the sources of returns to the portfolio,

00:01:33:24 - 00:02:05:27
Unknown
and when we're in a market like we are in at the moment, where we have extreme volatility in commodity prices, extreme volatility and equity outcomes, I think having that third pillar, in the portfolio, is, is incredibly important. And we'll touch upon more of that, as we go through the presentation. These are just some of the numbers that, you know, Adrian touched upon in his opening remarks. Obviously, given, just the volatility in markets, these numbers, you know, reflect end of November, they're already very out of date.

00:02:06:00 - 00:02:28:05
Unknown
You know, as you'll be aware from our monthly, monthly releases to the stock exchange. But it's really pleasing to see, you know, the, the results of the company trend in the right direction. You know, and hopefully that's something that we can continue to do, especially in a relative sense over the coming 12 to 24 months.

00:02:28:07 - 00:02:47:23
Unknown
I want to spend some time on this slide and talk about, you know, the way that we've evolved the exposure of the portfolio over the last 12 months and especially over the last, sort of 6 to 8 weeks, given what's been going on, in the markets. If we look back to the end of November 2024, 

00:02:47:23 - 00:03:10:03
Unknown
so, you know, a little over a year ago, you know, we had over 40% of the portfolio invested in the mining sector, just under 40% in conventional energy and around about 30% in energy transition. If you recall, our our neutral position, if you like, for the benchmark is 40, 30, 30 between those, those three sectors.

00:03:10:06 - 00:03:33:22
Unknown
So we were overweight mining, overweight conventional energy, neutral the energy transition. As we went through 2025, one of the things that we really began to see opening up, was a greater opportunity set in terms of breadth and depth of opportunity in the energy transition space. This was really powered by two things. And we've got some market slides that we'll sort of drill into this in more detail.

00:03:33:29 - 00:03:59:22
Unknown
The two key things that have powered this. Well, one, the growing realisation of the power requirements of the AI revolution and two, relative valuation. I've been at BlackRock a few months short of 20 years now, and for the entirety of my time on the team bar the last year or two, the energy transition space in which we've run dedicated funds for almost 25 years has traded at a premium to the market.

00:03:59:24 - 00:04:34:26
Unknown
But thanks to the, sort of negative political views on certain parts of the energy transition, particularly the other side of the pond from Mr. Trump, the sector has faced headwinds over the last 12 to 24 months in the way that it's perceived by the market. Very different to 2020 when we made the transition to include this part, the market in the portfolio, when it was arguably, you know, a sector that was overhyped and where the expectations of future success, were far ahead of what these companies could deliver. Today 

00:04:34:28 - 00:05:01:08
Unknown
the expectations and the valuations, you know, we view as are below where, what the companies are going to actually deliver. And so during last year, we took up the weights in these areas. And I know that's something that Charlie is going to explore more in some of the, in some of the Q&A. Because it's not only the absolute amount that we've invested in the energy transition that's risen, but where we're investing there, which is, which has really changed.

00:05:01:10 - 00:05:30:28
Unknown
And, you know, the only quick point I'll make on that is just that change in reducing energy efficiency exposure, which is typically more AI related. So we've taken that down as the hype around that has continued to rise and instead look to allocate, to some of the more unloved areas where we found greater value. Now, as one astute shareholder has already pointed out, in our annual report, we wrote about how we were not very excited about the oil markets for 2026.

00:05:31:00 - 00:05:51:26
Unknown
You know, this is the danger of having to always put everything in writing. And I will preface, you know, any remarks we make about energy markets, the impact of the war in the Middle East by saying, you know, obviously the human impact of what's going on there, on those affected is, is clearly, pretty horrific.

00:05:51:28 - 00:06:11:23
Unknown
And so any comments we do make is purely in the context of, you know, our role as managers of the trust, in trying to allocate your capital, to where the opportunities are going to be best in terms of risk adjusted returns. And not at all a comment on the humanitarian or political impacts of what of what is going on.

00:06:11:25 - 00:06:39:12
Unknown
So we exited the trust's year end, November 2025, you know, underweight the conventional energy space with about 25% of the portfolio, invested there. We were discussing with the board in our board meeting a few hours ago, that, you know, we have obviously changed that positioning. And, you know, as we sit here, today, it's around about 36% of the portfolio is invested in conventional energy.

00:06:39:14 - 00:07:05:10
Unknown
Now, the key question is then, did you do this, you know, after the oil price had gone to 90 and you were chasing your tail, or did you take any action before, you know, the oil price, environment changed significantly. And as we went through February, one of the things that became, you know, increasingly, sort of obvious to us was there was a lot of military hardware moving around, and therefore the risk of anything happening, was rising.

00:07:05:12 - 00:07:33:00
Unknown
And at the same time, we looked at some of the mining investments that we held in the portfolio. And actually, these are done incredibly well on a six month basis to kind of mid end of February. And so, towards the end of February, we closed that underweight that we were running, on the conventional energy, or on the oil side, and but it was only after the events, really kicked off in the Middle East that we then added, to that neutral position.

00:07:33:02 - 00:07:50:23
Unknown
But I think that something, you know, we really are very aware of when running this fund, is some of that just risk management, and what is already being priced into markets. And when you see market events like this, we don't want to try be heroes. There are people who are going to try and predict what's going to happen today, tomorrow, the next week in this market.

00:07:50:25 - 00:08:13:19
Unknown
I think you can look, incredibly stupid incredibly quickly doing that, and can, really misallocate capital. So throughout this, we've just been trying to risk manage, so that when the chaos begins to calm and volatilities begin to normalise, we hopefully have a portfolio that, you know, is reasonably stable, and that hasn't bled out 

00:08:13:22 - 00:08:23:03
Unknown
alot of the good performance that we've been able to generate, you know, over the past 12 to 24 months.

00:08:23:05 - 00:08:51:21
Unknown
We've already touched upon, performance positioning. We can we can touch on some individual names, if you'd like, during the Q&A. But one thing I would note, here, you know, is that we retain, you know, a real heavy preference for the mid to large cap companies because of their propensity to pay dividends. But especially on the mining side, we have built up, you know, a tail of names in the portfolio, that have got some of the next generation of projects, in the mining space.

00:08:51:24 - 00:09:15:07
Unknown
None of those appear in the top ten. But we've also been able to take advantage of some of the interesting opportunities. Convertible bonds, for example, where, you know, we've had particularly good results, one of them being in Abaxx Technologies, another one being in a, Canadian listed gold mining company, that, that has recently been, acquired by a Chinese company.

00:09:15:09 - 00:09:33:28
Unknown
And so we have sought to use some of the tools that are unique to the investment trust space, by going into some instruments, such as convertible bonds, which you may not find, in sort of open ended, peer or sister funds. I do want to get on to the market outlook in the interest of time.

00:09:34:00 - 00:09:55:00
Unknown
But I know and the chairman has already spoken about the performance, but I think the sources of income slide is something that is, something is always focussed on. I just like to point out that, you know, we've not been really ramping up the option income. If I look back in previous times, you know, there has been, options of accounts for almost 40%, of of total income.

00:09:55:03 - 00:10:18:28
Unknown
Today it's sort of be remained at sub20 percent. You know, that's where I would anticipate it to be, you know, over the next 12 to 24 months, the flexibility that the Board gave us, when we made the changes to include energy transition a few years ago, you know, the Board made the changes to also allow us to be more flexible, on, on meeting, the dividend from reserves at certain points in the cycle 

00:10:19:00 - 00:10:41:18
Unknown
and really take a total return approach to investing rather than be constrained on focusing on income generators. I think this has actually been a really important, point in enabling us to be flexible in allocating between the sectors, over the last 12 months, also the discount premium charts on the right hand side there, has already been touched upon, in Adrian's opening remarks.

00:10:41:21 - 00:11:12:04
Unknown
And now onto the interesting and exciting stuff around, you know, where we see the markets today. And you know, where the risks and opportunities currently lie. I think this first slide is really important. You know, when we think about portfolios as a whole, you know, when I think about, you know, my sipp, my ISA, and, you know, when I think all of our clients, whether it's individuals such as those in the room or institutional investors, you know, the value and role of diversification and how you achieve that today.

00:11:12:07 - 00:11:42:22
Unknown
And this is something, you know, that five, ten years ago, you know, everyone just thought of that 60, 40 portfolio where you had your equities to provide the growth, you know, and over the long term, that they would be the engine of your, of your portfolio returns. And then you had that 40% in bonds, to provide that resilience, that buffer, you know, during those periods of drawdown in equity markets, and for much of, you know, my time at BlackRock, you know, and even prior to that, you know, that relationship held true.

00:11:42:23 - 00:12:15:08
Unknown
You can see in the chart on the centre there, you know, a negative correlation between US 10 year treasuries and the S&P 500. That's really changed over the last 3 or 4 years. That correlation has not just reduced in it’s negative characteristic, but has gone to having no correlation to even a positive one. So the diversification benefits, from bonds that were once there are arguably less powerful today at a time when equity returns have become more concentrated.

00:12:15:10 - 00:12:45:12
Unknown
So the value of seeking alternative diversifiers for your portfolio, has become increasingly important. And we see this, you know, in the commodity space where you have a low correlation between the likes of the energy sector and the mining sector, with both general equities and specifically the AI basket, that we look at. Even the sustainable energy side or the energy transition side, you know, has only a 0.5 R squared, with the AI basket.

00:12:45:14 - 00:13:03:26
Unknown
I think this is really important when, you know, clients are increasingly worried about you know, well, what if what's worked for the last ten years doesn't work for the next ten? I know people who are specialists in in those areas that can speak far more eloquently and accurately about, you know, the outlook for those sectors than I can.

00:13:03:28 - 00:13:33:01
Unknown
But I do think, you know, when you've seen such a generational move in US equities, such an amazing move in technology shares, you know, you have to ask that question, what is already priced in and how do I how do I get some portfolio exposure that's broader than that? And hopefully trusts like ours, can help provide, you know, a small role in the satellite portfolio you build around that core. As we sit here today, you know, and given the events in the Middle East, 

00:13:33:01 - 00:14:00:02
Unknown
but, you know, this really started with the events between Russia and Ukraine, you know, sort of, four years ago now, is just energy security being brought back into the spotlight. And whilst everyone's focussed on things like the move in US gas in European gas prices, the move in oil prices, if you actually look outside of the sort of core exchange traded products, the moves in product prices have been even more extreme.

00:14:00:04 - 00:14:22:16
Unknown
If you look at, say, for example, kerosene prices, they've moved even higher. Oil prices in Asia, you know, you saw, oil ex Dubai traded sort of $135 a barrel. You look at the impact on fertiliser availability, costs and production. And it extends a lot further than just, you know, that traditional, oil and gas availability.

00:14:22:24 - 00:15:01:04
Unknown
And I think when we look at whatever the wreckage that comes out of this Middle East crisis is, I think there's going to be a refocus on not just energy security in terms of hydrocarbons, but the whole chemicals and fertiliser industry that come from that. And I think this is going to ignite a wave of reinvestment and change in policy around domestic energy security, domestic chemical security, extending into, into fertilisers, and the like, as well, and this is really exciting in terms of what it means for investments, across all parts of the energy stack.

00:15:01:06 - 00:15:26:07
Unknown
You know, oil prices, rising energy and gas prices rising, you know, is clearly going to reinforce the trends. We've seen, around some of the renewable generation. But also, it's going to mean an increased focus on the domestic supply of baseload power to, which is not always possible, with, with renewables. And so we can see some really exciting pickups in growth.

00:15:26:10 - 00:16:09:18
Unknown
You know, in terms of the investment side, across, across the hydrocarbon and the energy transition space. And that's part of the reason why, you know, we've taken up some of our increase in the energy space, by increasing our oil services exposure. And not just, on the exploration and production side. Also, though this investment wave that we're going to see, is coming alongside a period where we've got rising protectionism, combined with, you know, significant levels of government debt, which leads to, you know, a really interesting, both macro picture from an inflation and rate standpoint, but also what it means for materials demand.

00:16:09:20 - 00:16:33:06
Unknown
If you've got the combined factors of reshoring, along with the need to invest in energy infrastructure, these are things that are very materials intensive. You know, for much of the last couple of decades, Western GDP growth has been driven by the services sector. We've talked about GDP growth becoming less and less commodities intensive. That's now been flipped on its head.

00:16:33:09 - 00:17:02:20
Unknown
And you know, that was, you know, first of all, driven by policy around renewables, it was then driven by, protectionism and reshoring, in the US. And then it's been supercharged by the AI revolution, which is very materials and energy intensive. Energy intensive in the construction of these data centres, energy intensive, in the ongoing power requirements of these data centres.

00:17:02:22 - 00:17:22:09
Unknown
And this is something that I think is still, you know, quite underappreciated in just how seismic a change it is to the energy industry in the Western world. If you look at the chart on the top left hand side there just looks at energy consumption in the US, you know, over the last, sort of 25 years.

00:17:22:12 - 00:18:00:27
Unknown
And if you pull this chart back further, it would be a sort of similarly, boringly flat profile for many, many years, back before 2010. And so this is a sector which is being used to just reinvesting to keep that, literally keep the lights on, and all of a sudden it's having to flip into growth mode. This has some really exciting implications for grid companies who've got to transport this, this growing amount of electrical energy, has really exciting implications for the generators, of of all of this additional electricity, which would be typically priced as sort of utilities or sort of very boring companies.

00:18:01:02 - 00:18:24:01
Unknown
They're now entering a big growth phase. But also it's really exciting for the industries that supply these companies. And when we look at this whole energy spectrum, what we're trying to find, try to identify is where are the key bottlenecks going to occur. As we shift from an industry that's been used to, you know, plodding along to an industry that's now got to accelerate?

00:18:24:09 - 00:18:51:26
Unknown
Where are the key bottlenecks in meeting that growing demand going to be? Because where you find bottlenecks is where you find pricing power? And it's where you find outsized returns. And we're technology agnostic within that. You know, we are not a sustainability fund that has to invest in wind and solar. But equally, you know, we're not dinosaurs from the 2000s who only thing that fossil fuels, are the only way forward to power a grid.

00:18:51:28 - 00:19:11:27
Unknown
It is, where are the best opportunities along this spectrum? How is the market currently assessing those? And where is that pricing power? Where are those moats going to exist, and endure, you know, beyond just a 1 to 2 year squeeze, that could occur.

00:19:12:00 - 00:19:30:14
Unknown
And I just want to point then to some of these charts which point to sort of why this is exciting for the mining piece. You know, the left hand side there just puts into context, you know, where we see, the global infrastructure investment, you know, over the next 15 years compared to the last 15 years.

00:19:30:17 - 00:20:03:13
Unknown
And it's not just in energy, it's in transport, it's in social spend, it's in agriculture. And that little slither on the top, aerospace and defence is probably where you've got some significant upside, given what we're seeing, you know, around the world, very sadly, at the moment, and, you know, this is going to create some really exciting demand growth, which is far more diversified in its nature than the demand growth for much of the last 10 to 15 years, which was incredibly China centric.

00:20:03:16 - 00:20:29:07
Unknown
And if you just look at that top right hand graph, I just want to put into context here some of the capital expenditure numbers that we're seeing talked about in this AI revolution and how it compares to what's being invested by the miners, you know, to produce the materials that are required for this and the mining sector this year will spend between 60 and $70 billion on capital expenditure in total.

00:20:29:10 - 00:20:56:25
Unknown
You know, you compare that to what the hyperscalers are planning to spend on data centre capital, associated infrastructure of a between 6 and $700 billion. So ten times that amount. I remember, you know, most people thinking about the mining sector being irrational and, irresponsible allocators of capital. I wonder, you know, whether that tagline is correct at 

00:20:56:28 - 00:21:35:23
Unknown
the moment when you see such a disciplined sector, in mining benefiting from potentially the, the ill disciplined capital allocation, that is happening elsewhere. Who knows what the return on invested capital will be by those hyperscalers that are deploying this vast wave of capital at the moment. But I quite like being exposed, to the picks and shovels or the inputs into that process rather than having to try and work out, you know, which of these companies is going to triumph, you know, in this AI arms race. We've shown this chart before on the bottom left.

00:21:35:23 - 00:21:58:24
Unknown
I think it is really important to help remind us, you know, that the one of the costs of investing in cleaner power is the fact that it is very materials intensive. You know, now you'll see pictures of, you know, the sort of concrete and steel bases required for wind turbines, etc., and some people will use that, in a negative, to portray a negative stance.

00:21:58:24 - 00:22:15:28
Unknown
I think that is, you know, very unfair. I actually think, you know, when you look at that is failing to capture the fact that, you know, wind turbines, solar panels, once they're built, don't use much material in the future, whereas coal and gas, you obviously have to extract on a daily basis to feed those power plants.

00:22:16:00 - 00:22:37:14
Unknown
But the point still stands that, you know, if you want to, evolve your energy, mix the upfront energy and materials, investment that you require is enormous. You know, and is going to be a multi-year driver, of, of demand growth here. I just want to close off by touching on gold. We have a modest exposure for 

00:22:37:14 - 00:23:00:12
Unknown
gold in the portfolio, at around about 4%. Obviously, in the last four weeks, that's, you know, caused, headwinds to performance. But it has been, you know, incredibly positive if you look at it through through the 12 months, and the factors that have supported gold, you know, over the last few years are as strong today as they ever have been.

00:23:00:15 - 00:23:22:06
Unknown
You know, there is a broad form of currency aversion in the markets, whether that is individuals and institutions, you know, thinking about future purchasing power, and not wanting to have exposure to paper currency or whether it's central banks, who are worried about the future purchasing power of money, but also what they will be allowed access to.

00:23:22:08 - 00:23:46:12
Unknown
When you look at the policy response to the Russian invasion of Ukraine, it's no coincidence that the big step up in central bank gold purchases started really after the policy response, to to restrict access to the dollar system, there in the aftermath of the Russian invasion, of Ukraine. And I still think we're quite early, in this cycle.

00:23:46:15 - 00:24:16:03
Unknown
And this will benefit not just gold, but real assets rore broadly. Gold is the one that is always talked about because it is the most homogeneously priced. It's the most liquid, and it's the one with the longest track record. But this currency aversion is not wanting to be exposed, to the debt challenges, that almost every Western country, and, China, also faces will drive capital towards real assets such as infrastructure, mining, 

00:24:16:10 - 00:24:43:15
Unknown
and I would argue increasingly, you know, forms of energy generation, as well. I'm going to leave, you know, this, this summary, up, onhere, but, I'd be delighted to invite questions now, either around the portfolio, or our outlook. And I know that the board would also, you know, be happy to take questions on on the company dividends, income policies, etc., as well.

00:24:43:15 - 00:24:59:10
Unknown
And, Charlie is going to come up, you know, and, he'll be able to answer some of the questions on the energy transition and energy piece as well. He's going to come stand next to me, make me feel even quite small. But now I’d like to take some questions. Thank you again 

00:24:59:10 - 00:25:03:12
Unknown
all for coming and look forward to having a discussion, over lunch as well.