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The whys and wherefores of specialist investment trusts

For retail investors in particular, gaining exposure to more exotic markets and metals isn’t always easy

picture of miners
Specialist mining trusts are a good way to get exposure to the sector

Why pay someone else to invest for you when you can do it yourself?

One of the best answers to this sensible question is that managers of specialist investment trusts are, as it says on the tin, specialists.

For retail investors in particular, gaining exposure to more exotic markets and metals isn’t always easy, and having the expertise to navigate foreign regulations, limited liquidity, and complicated risk calculations doesn’t always marry up with the day job.

That’s why specialist investment trusts have proved popular over the years, in particular with relation to specific sectors like mining, technology and biotech, and in relation to specific jurisdictions like Asia ex-Japan, North America, and so forth.

One investment trust that looks to be on the turn is the Baker Steel Resources Trust Limited (LON:BSRT), set up by mining industry veteran Trevor Steel and managed in conjunction with Francis Johnstone.

Both of these men have extensive experience in capital markets, both have been on the boards of mining companies themselves, and both have operated in a variety of jurisdictions, many of which, like Russia and South Africa, are not easy places to navigate.

That sort of expertise doesn’t necessarily sit on the CV of your everyday investor, and in, say, a rising commodity market, the attractions of outsourcing investment decisions in the name of exposure to a higher risk-reward ratio are obvious.

There are other trusts in the mining sector too, like the BlackRock World Mining Trust (LON:BRWM), set up by, you guessed it, amongst others: Trevor Steel. It’s long been managed by seasoned professional Evy Hambro, though, a scion of a famous banking and commodities-focused family, one of whose ancestors is said to have financed Italian unification.

At the moment it’s worth around £660 mln, but if the gathering strength in the mining sector really begins to show through in the London market, the shares could go a lot higher. Hambro is well connected and, like Steel knows who to go to for the best deals when the market opens up.

Of course, mining isn’t area of activity for BlackRock. In fact it runs trusts for everything as varied as Emerging Europe (LON:BEEP), to Smaller Companies (LON:BRSC), to Latin American Investment (LON:BRLA), to North American Income (LON:BRNA).

All have their specific areas of focus, run by managers chosen for their specific skillset, and able to ride strong markets up and mitigate the negative effects of downswings.

That’s the theory at least. As most participants know, markets can be punishing when sentiment turns, and the managers of trusts are by no means immune.

However, unlike standard funds, they are at least immune to the relentless pressures of redemptions. The manager of a trust who believes in his investments can hold his course without losing the funds at his disposal to the panicking of investors seeking rapid exits. The downside to that is that trust share prices can fall heavily.

The upside is that a skilful manager can tell apart the dips from the crashes and build the capital base of the company.

At a time when the British economy looks increasingly unsteady, when the head of MI6 talks openly of a diminution of British influence commensurate with the 15% devaluation of all British assets following Brexit, the attractions of investing skilfully overseas have perhaps never been greater.

Trusts with exposure to North America and Japan, where economic performance is currently strong, have particular appeal. JP Morgan, Aberdeen and Artemis all offer exposure in this area. And that’s just the start – there are plenty of others.

So, the investor who takes a view on a particular jurisdiction, sector or commodity can let the specialist do the legwork but enjoy all the upside when it comes.

For mining, the time may just be now.

Quick facts: Blackrock World Mining Trust

Price: 359.65 GBX

LSE:BRWM
Market: LSE
Market Cap: £631.49 m
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