Merrill Lynch World Mining Trust

Scaling new heights

Merrill Lynch has been dominating the financial headlines over the past fortnight.  However, whilst the outlook for the investment banks is in our opinion clouded (at best), the prospects for high quality resource based investments such as MLW remains excellent.

The Trust is managed by BlackRock (which merged with Merrill Lynch Investment Managers last year; Merrill has a 49 percent stake in the venture) and offers UK investors a way to gain exposure to a diversified portfolio of global mining stocks in an instant. MLW has holdings in more than fifty stocks listed on eight exchanges globally.

Surveying the fund's holdings, as at 30 September 2007, the top ten stocks are Alcoa, Anglo American, BHP Billiton, Cia Vale Do Rio Doce, First Quantum Minerals, Impala Platinum, Rio Tinto, Teck Cominco, Zinifex and the recently added Peruvian based gold and silver producer Compania De Minas Buenaventura.

Irrespective of the locations and commodities concerned, a common theme runs through the Trust's holdings. Most of the stocks included have surged in recent months, yet still trade on low prospective valuations relative to the broader market. The average 2008 price-to-earnings ratio of MLW's top ten holdings is still around 11 times.

And we expect commodity prices to continue to gain as demand growth continues to outstrip supply-side growth.

Any slowdown in the US will be overshadowed in our view by the inexorable rise of China.

China has an enormous internal growth engine, driven by domestic spending on housing, roads, infrastructure, as well as a rapidly evolving middle-class that is demanding a Western standard of living, and hence driving demand for consumer items such as domestic appliances and motor vehicles.

Meanwhile the sub-prime affair in the US and expectations by financial markets that the Federal Reserve will continue with interest rate cuts is weighing heavily on the greenback. Correspondingly, this is great news for commodities, in particular our old favourites, gold and oil. Gold is currently trading at its highest level in 27 years.

This all suggests to us that there is a lot more upside in the share prices of the big miners, with earnings set to continue to rise. Add in a lack of world-class discoveries for most commodities and supply side pressures will be with us for sometime. All of which will help support strong commodity prices in our view. This bodes well for MLW's portfolio.

To summarise, MLW continues to offer investors excellent exposure to a portfolio of leading metals and mining stocks listed on exchanges around the world. The investment team have unparalleled expertise, and we believe further out-performance is on the cards as valuations catch up with robust commodity prices.