I’m a big fan of investment trusts, especially some of those that feature in the FTSE 250. Not only do they allow me to tap into more specialist parts of the market, they also allow their managers to borrow money to invest more at times when they are confident of generating better returns.
Notwithstanding this, many such trusts have endured a difficult year so far. As a Fool focused on the long term, however, I see this as nothing more than an opportunity to load up.
Polar Capital Technology Trust
Performance-wise, FTSE 250-listed Polar Capital Technology Trust (LSE: PCT) was doing incredibly well prior to 2022. Not that this should come as a surprise. The emergence of trillion-dollar tech titans over the last decade was always bound to get investors salivating.
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Sadly for those already invested, the year-to-date hasn’t been quite so kind. This investment trust’s share price is down almost a quarter, as I type.
Short-term blip? I think so. With literally billions of us committed to their ‘ecosystems’ I can’t imagine a scenario where the valuations of firms like Microsoft or Alphabet — two of the biggest holdings here — won’t recover. Yes, this might take a while. However, I would never think of buying shares here if my time horizon was anything less than a few years.
A word of warning
Naturally, I have no idea what will happen in the short term. Tech stocks could continue to be shunned by the market due to fears over rising interest rates. The latter tends to be bad news for companies who don’t expect to see profits for a while. Galloping inflation could also hit consumer demand for new products made by the sort of companies PCT holds.
For this reason, I’d need to look elsewhere as a way of balancing out the risk here. One option jumps out, also from the FTSE 250.
Blackrock World Mining Trust
Unlike most tech funds (including the one managed by Polar Capital), mining shares had a generally solid first six months of 2022. Investors, spooked by rising prices and the invasion of Ukraine, flocked to the likes of Rio Tinto and Anglo American. The Blackrock World Mining Trust (LSE: BRWM) also saw its share price soar.
Unfortunately, some of the gloss has now come off mining shares with several metals plummeting in value. The price of copper — often regarded as a bellwether for economic sentiment — recently hit a 20-month low.
This lack of control over the price of what they produce means the traditionally chunky dividends of mining firms can’t be guaranteed. As an indication of this, the aforementioned Rio Tinto recently halved its payout.
Safety in numbers
Still, the fact that the Blackrock investment trust spreads my money into many different companies digging up many different metals should help protect this income stream. Moreover, its managers can smooth what they pay out by holding back up to 15% of this cash in good years to return in less stellar periods.
I also think the long-term outlook could be great considering the amount of materials needed for things like electric cars and wind turbines. The possibility of a commodities ‘supercycle’ off the back of the green energy revolution remains a convincing argument for me to invest here.
