Caledonia Investments

[hiriskpaul]

Just to show that there are no hard and fast rules when it comes to performance and discounts, I have just noticed that in the Global sector the ITs with the best 10y records (by far) 10 years ago were British Empire, RIT Capital Partners and Caledonia respectively. All 3 have produced way below average returns over the last 10 years and the discounts on British Empire and Caledonia have widened. However, RIT Capital Partners have gone from a premium of 1.3% 10 years ago to a premium of 8% now! The difference may perhaps be explained by the fact that RIT are no longer in the Global sector, but in the Flexible Investment sector. In the new sector RIT have way above average 10y performance.

The gullibility of investors never ceases to amaze me.

[Noslien]

Hi hiriskpaul, yes you are right the sector classification can be misleading.

As you well know Caledonia is also a bit different from other Globals because of the Cayzer interest and the perhaps higher than average level of unquoteds. Cash levels are also quite high at 12%. If it was classified as Flexible it would be higher up. Your comment also points to the folly of judging what will do well on the basis of past performance.

I have some Caledonia, and as you say it hasn't being doing well, but I keep looking at it and wondering if in today's lofty market conditions it might emerge as a winner in 5 years time - is it a defensive? Investing has become more difficult now that fundamentals see to mean so little.

Regards

Noslien

[SalvorHardin]

Just to show that there are no hard and fast rules when it comes to performance and discounts, I have just noticed that in the Global sector the ITs with the best 10y records (by far) 10 years ago were British Empire, RIT Capital Partners and Caledonia respectively. All 3 have produced way below average returns over the last 10 years and the discounts on British Empire and Caledonia have widened. However, RIT Capital Partners have gone from a premium of 1.3% 10 years ago to a premium of 8% now! The difference may perhaps be explained by the fact that RIT are no longer in the Global sector, but in the Flexible Investment sector. In the new sector RIT have way above average 10y performance.

The gullibility of investors never ceases to amaze me.

The thing is that there are credible reasons why RIT Capital Partners trades at a premium. Don't assume that we're all mug punters!

For one thing RIT's NAV is published monthly, unlike the daily NAV of most ITs, and at the moment it's over three weeks out of date (Caledonia also publishes monthly NAVs). Then there is some inbuilt expectation of upward NAV revaluation of the unquoted assets due to conservative valuation practices; a reasonable assumption given RIT's past performance. Investors generally do not seem to make this assumption for other ITs with substantial unquoted interests.

It's like how some property companies consistently trade at a premium to NAV (e.g. Shaftesbury) because investors build in some extra NAV to their valuation (in Shaftesbury's case this is future rent increases and upward revaluation due to ongoing development projects where conventional accounting doesn't deal well with work-in-progress).

Also RIT has a lot of private investors who are long-term holders; we're not the sort of people who are likely to sell just because the shares trade at a premium of a few percentage points (we're not traders).

Caledonia cannot buy back its shares, except in tiny amounts, because this would push the Cayzer family stake to over 50%, forcing a takeover bid. They don't want to do this. So they cannot use the discount control adopted by some trusts (e.g. Finsbury Growth and Income).

The last lot of Caledonia shares I bought was in August 2011. Up 80% since then plus a 100p special dividend earlier this year, which comparison websites fail to pick up, making them outperform Bankers (which I also own) over the same period.

[hiriskpaul]

The thing is that there are credible reasons why RIT Capital Partners trades at a premium. Don't assume that we're all mug punters!

For one thing RIT's NAV is published monthly, unlike the daily NAV of most ITs, and at the moment it's over three weeks out of date (Caledonia also publishes monthly NAVs). Then there is some inbuilt expectation of upward NAV revaluation of the unquoted assets due to conservative valuation practices; a reasonable assumption given RIT's past performance. Investors generally do not seem to make this assumption for other ITs with substantial unquoted interests.

It's like how some property companies consistently trade at a premium to NAV (e.g. Shaftesbury) because investors build in some extra NAV to their valuation (in Shaftesbury's case this is future rent increases and upward revaluation due to ongoing development projects where conventional accounting doesn't deal well with work-in-progress).

Also RIT has a lot of private investors who are long-term holders; we're not the sort of people who are likely to sell just because the shares trade at a premium of a few percentage points (we're not traders).

I am not overly concerned about holding an asset that trades at a premium to book or NAV if there is a rational reason to do so. I did that with HICL for example until the premium became absurd, but in the case of RIT (which I know nothing about), to what extent do you think the premium is justifiable? e.g. would you sell if it hit 10%? From their history I can see that it was not very long ago that they were trading at a discount.

Caledonia cannot buy back its shares, except in tiny amounts, because this would push the Cayzer family stake to over 50%, forcing a takeover bid. They don't want to do this. So they cannot use the discount control adopted by some trusts (e.g. Finsbury Growth and Income).

The last lot of Caledonia shares I bought was in August 2011. Up 80% since then plus a 100p special dividend earlier this year, which comparison websites fail to pick up, making them outperform Bankers (which I also own) over the same period.

That is interesting, I was wondering if something like that might be the reason they allow such a large discount to persist. Maybe I should take a closer look - the discount does make them very attractive and I am underweight PE at present.

[Dod101]

Hiriskpaul

Your latest post just goes to show that one should not take comments simply at face value. You were writing earlier as though you knew something of the trusts you were commenting upon. Now it seems that you were simply looking at the figures without any reference to the circumstances of the individual trusts. I have held most if not all of the generalists mentioned in this thread and still hold some. One of these, RIT, is very different from the others as it has a high content of unquoted vehicles which I could not access myself (at least do no know how to) and it is as much a wealth preserver as anything else. The other thing is that those trusts with a large family holding such as RIT and Caledonia are by nature very conservative seeking long term growth at the expense of short term gains. Another issue about Caledonia is that I think more than 10 years ago one of the reasons for the discount to come in a bit was its conversion to an IT. That brought the discount down from well into the teens (maybe even 20%) to more like 7 or 8%.

Very few who hold ITs will sell very often. I ditched British Empire after it seemed to have lost its way but it might be an idea to take a look again, because its modus operandi seems to go in cycles.

I like Caledonia because the Cayzers are good long term investors and are prone to disgorging a special 'chunky dividend from time to time, as SalvorHardin mentioned.

Dod

[hiriskpaul]

Hi hiriskpaul, yes you are right the sector classification can be misleading.

As you well know Caledonia is also a bit different from other Globals because of the Cayzer interest and the perhaps higher than average level of unquoteds. Cash levels are also quite high at 12%. If it was classified as Flexible it would be higher up. Your comment also points to the folly of judging what will do well on the basis of past performance.

I have some Caledonia, and as you say it hasn't being doing well, but I keep looking at it and wondering if in today's lofty market conditions it might emerge as a winner in 5 years time - is it a defensive? Investing has become more difficult now that fundamentals see to mean so little.

Regards

Noslien

Yes anyone investing in an IT needs to be really careful they know what they are buying. The names can be meaningless and the AIC Sector often arbitrary. They can also radically change their investment approach, so even after purchase, one has to keep up with annual reports, etc. Not always of course, "JPMorgan European Income" pretty much sums it up, but British Empire? or Majedie? Blue Planet has 51% invested in fixed interest, despite it being in the Global Equity Income Sector.

As to a future rout, not much of a guide, but Caledonia did not hold up well during the financial crisis. In comparison, RIT and British Empire did quite a lot better.

[hiriskpaul]

You were writing earlier as though you knew something of the trusts you were commenting upon. Now it seems that you were simply looking at the figures without any reference to the circumstances of the individual trusts.

I was commenting on what I suspected was likely to be the main reason for the large discount. That reason I still maintain is likely to be because of the relatively poor 10y performance record. It can take a long time to overcome something like that. I have held Templeton Emerging Markets for 27 years and although it has always traded at a discount, there have been times when the discount has gone over 25%, following particularly awful performance, and down to single digits during periods of good performance. The discount is now (slowly) reducing again following a couple of years of outperformance.

[Steveam]

Caledonia to purchase own shares for cancellation. No great detail (neither price nor quantity) but must underpin the present depressed price.

https://www.caledonia.com/rns/view/id/1627

Best wishes,

Steve

[Steveam]

Results here: https://www.caledonia.com/rns/view/id/1631

The proposed final dividend for the year ended 31 March 2018 was not included as a liability in these financial statements. This dividend, if approved by shareholders at the annual general meeting to be held on 19 July 2018, will be payable on 9 August 2018 to holders of shares on the register on 29 June 2018. The ex-dividend date will be 27 June 2018.

Final is proposed as 39.9 p/s.

Nothing spectacular here but net asset value down as large special dividend paid.

Best wishes,

Steve

[Peltiq]

My interpretation of the report is that the final div will be 41.5p per share - payable on 9th August 2018.

[Steveam]

Apologies all. Peltiq is right. I was wrong.

Apologies again.

Best wishes,

Steve

[Steveam]

https://www.caledonia.com/files/file/view/id/1157

Half year report. Dividend 16.1p/s (plus 3.9%) payable 10th January.

Best wishes,

Steve

[Dod101]

Steveam has just beaten me to it. I have just received the Interim Report as well. NAV per share was up 9.8% over the 6 months to 30 September, and the interim dividend up by 3.9%. They have an ungeared Balance Sheet. I was writing on another Board in the last week or so about the attraction of family companies, and this is a prime example.

These 'boring', conservatively managed companies are just what I look for for the long term. I have held Caledonia since June 1992 and have changed nothing since then. Bought at £3.48; now around £28.65 largely unaffected by the recent market downturn.

And I should have said that they have appointed a new Finance Director in Tim Livett from the Welcome Trust. That experience cannot be bad.

Dod

[StOmer]

Also interesting for me that they have moved AIC sector and now reside alongside RIT Capital Partners etc in the Flexible Investment Sector rather than Global.

[SalvorHardin]

Yesterday Caledonia announced an interesting acquisition; 36.7% of Stonehage Fleming for roughly £92 million (plus potential future payments of up to £20.6 million depending upon the performance of the business). Buying such a sizeable stake in a private company is something that the vast majority of investment trusts would never do (or even be allowed to do). It's this sort of thing which makes Caledonia more interesting than the typical investment trust.

Stonehage Fleming is a wealth management company which specialises in "family offices" - dedicated organisations which manage the wealth of an entire family (just as Caledonia does for the Cayzers). For some families the office will assist with their general financial administration and provide other concierge services such as paying the bills, hiring the dog walker and personal security operatives.

There was an interesting feature in The Economist a couple of weeks ago about the role of family offices, in particular how the very wealthy are getting increasingly fed up with the very high charges levied by many investment managers. One way to cut charges is to bring things in house. Hedge funds are clearly a major target, with most charging huge fees for underperforming the main market indices. This looks like an interesting sector to be in, particularly with the increasing number of very wealthy families in the developing world (many of whom will want to protect their wealth from rapacious and often highly corrupt governments).

"Super-help for the super-rich"
https://www.economist.com/briefing/2018 ... ial-titans

Official announcement
https://www.investegate.co.uk/caledonia ... 04512515L/

[0x3F]

This realvision interview with Tony Deden is a fascinating insight into the management of generational wealth and thought process behind it. Investors in CLDN/RCP will recognise many of the themes and find it very interesting.

-0x3F

[Dod101]

Thanks SalvorHardin. Caledonia certainly has what seems to be a very odd collection of investments. They own 93.1% of Seven Investment Management and alongside that 98.9% of Gala Bingo and a care homes provider which they have just profitably sold.

That's why I like them. Something different from the usual IT. I will read the links you have provided with great interest.

Dod