Questor: this commodities trust is one to take a punt on if you believe in Trump’s 'reflation’

The hope is that he will make good on his promise to boost America’s rate of economic growth to 4pc a year and renew much of its ageing infrastructure. In the process, the theory goes, inflation, interest rates and bond yields will rise, finally lifting the global economy out of the deflationary, low-growth, low-rate funk in which it has been stuck since the financial crisis.

It’s not hard to pick holes in this story.

But we should never forget the enormous power of sentiment when it comes to economic activity and stock market investing.

John Maynard Keynes famously referred to the power of “animal spirits”, while George Soros has attributed his success in part to his belief that, while the health of the economy undoubtedly influences stock markets, the reverse is also true.

What is undeniable about the Trump story is that he has injected a new feeling of optimism into investors and Questor believes that this alone could drag the world economy out of its post-crisis malaise.

There are many ways in which you could try to ride this trend.

But one sector that should benefit not just from a renewal of economic animal spirits in general but specifically from Mr Trump’s infrastructure boost is commodities.

Among investment trusts that operate in this sector, the most attractive to Questor is BlackRock World Mining.

The trust, managed by Evy Hambro and Olivia Markham, is one of just 17 quoted funds to make it into the model investment trust portfolio of JP Morgan Cazenove, the stockbroker.

JPM Cazenove said: “As part of a more general 'reflationary’ trade we remain positive on commodities including materials and mining.”

Despite strong share price gains for mining stocks in 2016, the broker said the mining sector still offered good potential for earnings to rise from a low base.

It pointed out that investors in the mining sector had endured immense volatility – the sector was one of 2015’s worst performers but one of 2016’s best – but said the BlackRock trust offered “a unique exposure within the investment companies universe” and was “the best way to play a metals and mining theme”.

“The managers, who we rate highly, make clever use of options, which have been highly accretive to income in recent years,” JPM Cazenove added.

Investment trust analysts at Numis, another stockbroker, said: “BlackRock World Mining is our favoured play for mining exposure. The team, headed by Evy Hambro, is highly experienced and has a decent record.”

One cloud on the horizon is that the trust is highly likely to announce a significant cut to its dividend.

The interim payment was cut by 45pc and Numis speculated that investors could receive a total of 13p for the year, down from 21p the previous year, which would still be equivalent to a yield of 3.5pc at yesterday’s share price.

But the trust’s current discount of 14.3pc is perhaps its biggest attraction.

Discounts are driven heavily by sentiment, so if the Trump “reflation” horse continues to run, the trust’s discount could narrow significantly. Assuming that its assets also prosper in such an environment, investors could see a dramatic rise in the share price – particularly as any gains would also be amplified by the trust’s “gearing” (borrowing to invest) of 11pc.

The portfolio’s annual cost, as measured by the total expense ratio, is 1.21pc, which is on the high side but not unreasonable for a specialist fund of this nature.

Questor says: speculative buy

Ticker: BRWM