The Lemon Fool

This is a trust that is not much discussed here but one that I have held for almost exactly 25 years (bought on 10 June 1992) I am interested to see that Merryn Somerset Webb in the FT today mentions it as worth a look.(I guess she cannot give advice)

It has just announced its results to 31 March and have increased the dividend (which they have done every year for the last 50 years) and this year have added a special which they do occasionally. They have an interesting mix of investments and just keep at it, some quoted shares, some private equity etc. It is actively managed and they are not afraid to trade. They have just sold a biggish holding in Close Brothers which they had held for 30 years. They hardly ever borrow and no expensive debentures and very conservative.

I think it is the sort of trust that most private investors ought to hold and of course they have the Cayzer family as large passive investors and that will keep the management on its toes.

However DYOR.

Dod

Yep, own it myself, a plodder but that's no bad thing. A good buy in terms of its discount to NAV (13.7 % on AIC), but bad for its far too high charges (1.09%). I would add in Brunner to the same type of good family linked trust mix given they are now a global trust with a good manager and the same discount to NAV as Caledonia - Brunner though scores some extra Brownie points in my book due to a (still too high but far better) OC figure of 0.79%.

I've held Caledonia for about 20 years and every now and then I add a few more. Very comfortable to hold these in the back of the sock draw - never touch them but nice to know they are safe, safe, safe. Having been stirred into action by this thread I might even buy some more!

Best wishes,

Steve

http://www.caledonia.com/files/file/download/id/1071

Caledonia had a Capital Markets Day presentation today - well worth a look.

Best wishes,

Steve

Out of interest, does anyone know much about Caledonia's largest holding, Cobehold? It would appear to be a Belgium based holding company, but that is as much as I know?

Coincidence that you ask about Cobehold today as Caledonia have just reduced their holding somewhat. The RNS explains but Cobehold is the holding co for a Belgian unquoted investment company. None of this tells me very much but it's one of those investments I hold without trying to look under the bonnet.

https://www.caledonia.com/rns/view/id/1591

Best wishes,

Steve

Wells Capital Management (Wells Fargo) have increased their stake to over the 5% threshold.

https://www.caledonia.com/rns/view/id/1606

Best wishes,

Steve

So Wells Fargo are in good company. I expect they are trying to do the same as us, find some foreign diversification. Mind you so did Warren Buffet when he bought in to Tesco.

Dod

Sale of the Sloane Club in Chelsea for a decent premium to carrying value. Not vastly significant in the scheme of things (£80m) but indicative of the somewhat conservative carrying values and good management. Nicely done.

https://www.caledonia.com/rns/view/id/1609

Best wishes,

Steve

Half year report. https://www.caledonia.com/rns/view/id/1613

Interim dividend up 4% to 15.5p payable 11-Jan-2018

Best wishes,

Steve

Caledonia gets a mention in the Weekend FT.

https://www.ft.com/content/9ffe81b6-ced ... 1a884dd8c6

Best wishes,

Steve

A posting of Dod's caused me to look more closely at Bankers and Caledonia. Superficially they appeared similar in that the geographic spread was similar for both. What stood out though was the high discount for Caledonia, 18%, Bankers only about 2%. I then looked at their holdings more closely and saw that Caledonia is 30% in unquoted whereas Bankers is entirely in quoted investments. Might this explain the big disparity in the discounts for these two ITs?

I'm no expert in this area but yes, from what I do understand, that may explain it.

With unquoted investments within an IT I have read that because the net assets are difficult to value, a larger discount is often shown. I think it's a similar situation with PE ITs.

Could be because of the large PE holding, but my guess would be the poor performance of Caledonia - look at the 10y performance especially. Going forward though, Caledonia could be a great contrarian pick with that size discount.

Just noticed the charges are rather high for the sector - might be a put off as well.

If you look at the Dividend Heroes thread you will see that on a total return basis Caledonia comes out best against Bankers and a couple of other ITs over a 25 year period so where the idea that it is a 'poor performance' came from I have no idea. Its discount is I think most likely to arise from its unquoted investments but Caledonia is a conservatively managed trust and I would think that more likely it is erring on the side of caution in its valuations. It has relatively high charges but those notwithstanding it still has an excellent long term record, and those charges are high most likely because its style of investment is 'hands on' which will be obvious to anyone who reads its Annual Report.

I have been a very happy holder of Caledonia for just over 25 years.

I may say that the reference to 'Dividend Heroes' was in the FT of 25 November and refers to the only ITs that have increased their dividends for 50 consecutive years. Caledonia was ahead of its nearest rival, Bankers in terms of its total return over a 25 year period to 31 October 2017. It is not a poor performer no matter how you measure that.

Dod

hiriskpaul wrote:Could be because of the large PE holding, but my guess would be the poor performance of Caledonia - look at the 10y performance especially. Going forward though, Caledonia could be a great contrarian pick with that size discount.

I just had a look - you're right. It is very poor performance.

Dod101 wrote:If you look at the Dividend Heroes thread you will see that on a total return basis Caledonia comes out best against Bankers and a couple of other ITs over a 25 year period so where the idea that it is a 'poor performance' came from I have no idea. Its discount is I think most likely to arise from its unquoted investments but Caledonia is a conservatively managed trust and I would think that more likely it is erring on the side of caution in its valuations. It has relatively high charges but those notwithstanding it still has an excellent long term record, and those charges are high most likely because its style of investment is 'hands on' which will be obvious to anyone who reads its Annual Report.

I have been a very happy holder of Caledonia for just over 25 years.

I may say that the reference to 'Dividend Heroes' was in the FT of 25 November and refers to the only ITs that have increased their dividends for 50 consecutive years. Caledonia was ahead of its nearest rival, Bankers in terms of its total return over a 25 year period to 31 October 2017. It is not a poor performer no matter how you measure that.

Dod

76% over 10 years compared with 172% for Bankers and the median performer (F&C) on 149%. This is what those who are setting the prices for Caledonia right now will be swayed by. The risk of PE/small caps for the return of gilts. (Most) price setters could not give a hoot what historical performance looked like 10 years ago or indeed what the performance has been over 25 or 50 years, or the fact that they managed to regularly increase the annual payments to their investors of the investors own money for 50 years. How long do you give a fund before you recognise failure and time to move on?

Personally though where others see basket cases I like to look for opportunities. But in this case I find the high charges for such lamentable performance very off putting. I would question why the directors have considered this to be acceptable when their better performing peers such as F&C, also holding PE investments, have half the TER.

Most investments have better and poorer periods. Bankers was pretty abysmal over the previous 10/15 years so it depends over what period you look. I was quoting 25 years; you 10 years.

The entire Caledonia story is not driven I suspect by the Directors but by the Cayzer family, often of course the same.

Dod

Dod101 wrote:Most investments have better and poorer periods. Bankers was pretty abysmal over the previous 10/15 years so it depends over what period you look. I was quoting 25 years; you 10 years.

Totally agree. My original comment was a suggestion as to why the discount was large. The fact is more recent performance records have a greater influence on discounts than longer term performance. Bankers/Caledonia being a good example. 10 years ago Caledonia had a fantastic 10 year track record, along with British Empire and trounced the 10 year returns of Bankers. At the time, Caledonia had next to no discount, British Empire 2.9% and Bankers 10%. Following the reversal of fortunes we now have 18.9%, 9.9% and 1.1% respectively. Such are the opportunities (and risks) with ITs.