A Tale of Two Trusts – SLS and BRWM

Yesterday Blackrock World Mining (BRWM) announced they were writing off their investment in London Mining. This was one of their largest holdings and cut the trust’s net asset value by almost 8%. The share price promptly fell by 8% on the day and fell further today. Who are London Mining you may ask? This is a small iron ore mining company based in Sierra Leone which has been badly affected by the slump in iron ore prices and the Ebola crisis which has affected operations in the country. The company announced several days ago that the equity of the company was likely to be worthless even if the company managed to find funding to continue.

Now this is surely a rather unusual event at a large trust such as BRWM which seemed to be primarily a play on the commodity sector and where most of its holdings are large international companies. It’s biggest holdings are Glencore (12.6%), Rio Tinto (12.1%) and BHP Billiton (11.1%). Why was this trust risking it’s investor’s money on a big investment in a company such as London Mining?

It’s worth comparing that with Standard Life UK Smaller Companies (SLS) whose AGM I attended yesterday. That company, ably managed by Harry Nimmo for many years, has a policy of “top slicing” any holding that goes over 5%, and they have about 50 holdings in total – Harry’s highest conviction ideas as it was suggested. So if they come a cropper over an individual holding (such as Blinkx last year), then the overall portfolio performance is not badly affected. Top slicing also enabled them to sell a lot of ASOS before the recent fall back in the share price and otherwise not get too overweight in highly valued stocks.

But Mr Nimmo was not as positive about the prospects for small cap stocks in the next few years as in the past five. He suggested growth might be only 10% per annum instead of 25% per annum. There is a report on the AGM and the managers presentation in the ShareSoc Members Network. Certainly worth reading for anyone interested in small cap stocks.

Roger Lawson

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