Merrill Lynch launches new commodities investment trust
Merrill Lynch Investment Managers (MLIM) is launching a new investment trust, the Merrill Lynch Commodities Income Investment Trust plc.
The new trust will be managed by the firm's award winning Natural Resources team, which is headed by Dr Graham Birch, and will give investors access to the income and growth potential of mining and energy companies from around the world. It is a sector that the Natural Resources team believes is in a prolonged period of strong cashflow and earnings.
The trust will aim to generate an initial dividend yield of 4.25 per cent per annum and will include MLIM's discount protection mechanism. It will sit alongside MLIM's existing successful funds in the natural resources sector.
Richard Davis, a member of the Natural Resources team since 1994, will manage the new trust. Currently, the Natural Resources team manages in excess USD 12 billion of assets in the gold, mining, energy and new energy technology sectors.
2004 saw a string of record results from major mining and energy companies around the world. Company results for 2005, so far, are even better with strong cash flows triggering a new trend in capital management.
"While demand for commodities is strong and continues to grow, principally because of the industrialisation of China, MLIM believes commodity prices will remain high for a prolonged period," says Davis. "Further, growth in the supply of metals and minerals is held back by a lack of investment and limited exploration success, in addition inventories are at historically low levels.
"In energy, the outlook is characterised by rigid supply and demand dynamics," he adds. "Oil supply is increasingly constrained and at the same time demand has continued to grow and looks set to continue rising further, with China's shifting energy consumption patterns beginning to have a meaningful impact on the world energy market.
"In contrast to earlier commodity cycles, management in the mining industry seem determined to ensure that shareholders are well rewarded. We have seen an upsurge in dividend increases and share buybacks. The ML Commodities Income Investment Trust plc will allow investors access to these dividend streams."
The Trust's primary objective will be to seek to generate income for shareholders by investing primarily in the securities of companies operating in the commodities sector. Subject to the primary objective, the Trust shall also seek to maximize capital growth.
Listed in London, it is will comprise a focused portfolio of between 40-60 securities, without restrictions on geographic and sub-sector exposure, thereby exploiting MLIM's stock picking abilities.
Dividends will be paid quarterly and the trust will include MLIM's discount protection mechanism under which, at the discretion of the Directors, shareholders will be invited to participate in a twice-yearly tender offer for up to 20 per cent of the total shares in issue at a 2 per cent discount to net asset value (NAV).
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