Blackrock World Mining (BRWM ) is looking to maximise income by increasing exposure to mining royalties as turbulent commodity markets have shrunk returns.

This year started strongly for commodities as the reopening of the Chinese economy sparked hopes for a rebound in oil, metals, and coal.

However, those hopes were swiftly dashed as China’s economy spluttered and relentless interest rate rises in western economies prompted fears of a global recession. On top of these macro conditions, mining companies were put under pressure by cost inflation and compressed margins.

This was evident in the performance of the £1bn portfolio, with the total underlying return falling 7.1% in the first six months of the year, while the shares slid 10.3%.

The steep falls were in contrast to a 3.2% rise in the FTSE 100 over the same period, an increase in the consumer price index (CPI) rate of inflation of 7.9%, and a 5.4% rise in the fund’s benchmark, the MSCI All Companies World Metals & Mining index 30% Buffer 10/40.

Fund manager Evy Hambro, who runs the portfolio with Olivia Markham, said the macro conditions drove the ‘steep cyclicality most investors associate with the sector’ but nevertheless it remained ‘more resilient than in the past’ as mining companies have paid down historic debts and balance sheets are now stronger.

‘If companies can hold on to the capital allocation frameworks outlined at last cycle’s low point, 2016, then there is a strong probability that once the near-term economic noise dissipates, the underlying fundamentals should drive returns,’ said Hambro.

Lithium has been the biggest casualty this year, with prices tumbling 44% in the first half, despite being a critical part of the energy transition thanks to the use of the metal in batteries.

There have been fears over the supply of lithium and Hambro said ‘project delays have become a feature of this market in recent years,’ with these concnerns pushing the likes of Ford and General Motors to fund lithium projects via equity stakes and loans.

Hambro (pictured) added to his lithium holdings this year to take advantage of the pullback in equities, increasing exposure to Albemarle and Mineral Resources, with lithium holdings now making up 7.8% of the portfolio.

While commodity prices have been a drag on performance, Hambro said he has ‘enjoyed a number of successes this year’ from the unquoted part of the portfolio after Ivanhoe Electric and Bravo Mining went public ‘at a substantially higher level than the company’s initial investment’.

Hambro also made money on a Brazilian gold and copper royalty previously operated by OZ Minerals that was transferred to BHP after its acquisition of OZ Minerals.

Royalties offer a revenue ‘differentiator’ as dividends from core holdings are reduced in the wake of weaker balance sheets, according to Hambro.

Numis Securities analyst Ewan Lovett-Turner said BRWM was one of the few trusts issuing shares in the first half, despite weakening mining shares.

‘The fortunes of the sector are likely to continue to fluctuate based on investors sentiment and the outlook for economic growth,’ he said.

However, he said the trust offers a way for investors to ‘access a diversified portfolio of mining shares via a large and liquid fund, with an ongoing charges ratio of 0.95%’.

‘We believe the fund needs to deliver outperformance over the long-term, given that access plays are available via other structures,’ said Lovett-Turner.