Caledonia Investments, a £3bn global equity fund, has issued a “manifesto” that has got Questor believing shares in its long-standing tip will finally deliver on their full potential.
At a time when political parties are battling to see which will govern the country for the next five years, Caledonia has declared in a short video that its goal is to be a patient, long-term custodian of people’s wealth.
The company wants to appeal to generations of families other than the Cazyer shipping dynasty which established the investment trust in 1960 with the proceeds from a trading business that dated back to Liverpool in the 1870s.
With the backing of the Cayzers, who own 49pc of the shares and have three seats on its 12-strong board, Caledonia says it does not suffer from the short-termism that has so plagued British finance and politics.
Its new motto, “time well invested”, reflects its ambition to take the time to find the best investments, buy them at the right time and hold them for as long as it takes for their returns to compound for shareholders.
It currently has £239m in cash having sold wealth platform Seven Investment Management for £256m last year, more than trebling its return over eight years.
While waiting for the next big deal, Caledonia scooped a small stake in Diageo earlier last November when shares in the Guinness drinks group fell on a profits warning caused by slowing sales in Latin America.
Caledonia’s unhurried approach is exemplified by its semi-annual dividends.
Annual results last week showed these rose by 4.5pc in the 12 months to 31 March, the 57th consecutive year the shareholder payout has increased.
The shares yield 2.1pc, less than the 3.6pc from the UK stock market which shows that Caledonia is primarily a vessel of capital growth rather than income.
The trust takes a “multi-equity” rather than the “multi-asset” approach of rival RIT Capital Partners, the Rothschild-backed trust that invests in debt and other specialist assets as well as shares, which we tipped as good value in April.
By contrast, Caledonia takes a broad approach to equities.
It invests its assets in three buckets.
First, the shares of public companies such as US software giants Microsoft and Oracle.
Second, a group of eight private companies including Cobepa, another family-backed fund in Belgium, and AIR-serv Europe, a Wigan-based provider of car wash and cleaning machines in which it invested £143m last year
And third, 74 private equity funds investing in unlisted businesses in North America and Asia.
In the 2023 to 2024 financial year, the public companies segment returned 12pc, the private capital portion did slightly better at 12.3pc and the private equity funds – historically the strongest part of the portfolio – trailed on 2.2pc after a dearth of opportunities to sell maturing investments.
Although Caledonia invests globally, with a third of its holdings in the UK, the trust compares its performance to the FTSE All-Share index.
It also sets a long-term target of beating inflation by 3 to 6pc a year as part of its aim to provide a positive long-term return regardless of market and economic conditions.
Over the past decade, it has done both with a 10pc annualised investment return that beats the All-Share’s 5.8pc average annual gain and the 2.9pc average rise in inflation.
The problem is the shares do not fully reflect the outperformance the trust has achieved exceeding the UK benchmark in seven of the past nine years.
At £33.50, Caledonia’s share price trades 37pc below the value of its investments with net asset value per share of £53.47 on 30 April.
That discount has worsened in the past two years and is much wider than the 13 to 20pc range before the pandemic.
The lagging share price means shareholders incurred a small loss of 1.2pc in the latest financial year with dividends included.
Over five years, despite Caledonia’s underlying total annual return of 10.9pc, shareholders have received 5pc, less than half what they should have made and below the All-Share’s 5.4pc.
If that is discouraging, Questor takes comfort that Caledonia is making more of an effort to communicate.
While the large Cayzer stake makes it impossible for the company to buy large amounts of its shares to narrow the discount, the shares will benefit if the world better understands what the company does and the huge value its shares offer.
As we have previously noted, excluding cash and listed stocks, Caledonia’s shares value its private equity investments nearly 60pc below their audited value. For such a steady, diversified fund that remains a massive bargain.
Questor says: buy
Ticker: CLDN
Share price: £33.50
Gavin Lumsden is editor of Citywire’s Investment Trust Insider website
Read the latest Questor column on telegraph.co.uk every Sunday, Monday, Tuesday, Wednesday and Thursday from 8pm.
Read Questor’s rules of investment before you follow our tips.
