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IT Insider: can Caledonia recapture its magic touch?
by James Carthew on Jan 31, 2012 at 00:01
Caledonia Investments is an £825 million market cap self-managed trust in the global growth sector. It sits on one of the widest discounts in its peer group; 24.5% currently versus a peer group average of 9.4%. Over most rolling time periods it ranks as the worst performing fund in that peer group (a big reason for the discount). Does it have any redeeming features?
Caledonia is a fairly unusual fund in that it has been run by members of the family that set it up for most of its life. They wanted capital growth and income and, to its credit, the fund has a 44-year track record of increasing dividends.
The Cayzers, the family behind Caledonia, made most of their money in shipbuilding. Caledonia was set up a few generations ago to manage the family wealth. There are now numerous beneficiaries, most of whom hold shares through the Cayzer Trust, which remains a significant shareholder in the company.
Before it became an investment trust in 2003, Caledonia traded on a large discount to net assets. Converting to a trust encouraged new investors into the vehicle, sorted out the register and allowed the discount to narrow. However, in recent times the rating has been slipping.
The senior management has also changed. Will Wyatt, a long-standing employee, was appointed MD in July 2010. Since taking over he has cut the number of holdings, increased the portfolio yield and established an ‘income & growth pool’ within the portfolio with a target yield just under 5%.
The portfolio is fairly concentrated, with the top 10 stocks accounting for around half the fund. A number have been there for many years. They pride themselves on their long-term approach and often get involved with the management of the companies they invest in, taking significant stakes.
An unusual portfolio
The portfolio is genuinely different from any other investment company out there and, when it is working, this is part of the attraction for investing in the company.
About a quarter is invested in unquoted stocks and, given how far private equity has moved out of favour, this may account for some of the discount widening. A proportion is in funds; I am happy with this if they bring something to the portfolio that is hard or expensive to access directly.
They have a penchant for India. There is no obvious reason for this but if they were going to start making investments in emerging markets it made some sense to concentrate their limited resources on one area.
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