Caledonia Investments tackles its discount

Caledonia Investments (LSE: CLDN) is one of the few remaining investment trusts with a significant founding family shareholding. The £2 billion trust is 48% owned by the Cayzer family, which was one of the most powerful shipping dynasties in the world in the late 1800s. Today, it looks after £2.9 billion of assets, all managed in-house, which are split across three pools of roughly equal size: quoted equity, private equity and direct private-company holdings.

Caledonia has been part of the MoneyWeek investment trust portfolio for many years. We like its diverse approach and its aim of earning solid long-term returns of 3%-6% above inflation, while managing risk during periods of uncertainty and instability.

The private capital part of the portfolio is focused on high-quality, UK mid-market companies. The holdings comprise eight companies, with five investments representing over 90% of the pool’s net asset value (NAV). The largest is Stonehage Fleming, an international multi-family office, whose valuation was marked up by 32% during the year. Caledonia targets returns of 14% per year from this section of its portfolio.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

The past year has not been so strong. Over the year to 31 March, the NAV total return was 3.3%, compared with 10.5% for the FTSE All-Share. Still, all three pools generated positive performance: quoted equities achieved 4.7% (despite a 7.3% decline during the market volatility in March), private capital returned 3.7%, and funds returned 2.2%. The long-term record is solid, and so this is no cause for concern.

In addition to maintaining a policy of paying annual dividends that increase by inflation or more over the longer term (73.6p per share last year, for a yield of 1.9%), Caledonia has launched a share buyback scheme. During the last financial year, it repurchased 1.8 million shares, or 3.2% of its shares, for £63.8 million. A further 247,000 were bought back since 31 March, at a cost of £9 million. In addition, the split between final and interim dividends will be made more equal to provide a more even income stream.