Caledonia Investments LON:CLDN is a GBP2.9bn investment trust that has been in existence in one form or other since 1928 when it was founded as the Foreign Railways Investment Trust. The trust was acquired and used as the family office of the Cayzer Family which had made its fortunes in shipping. The Cayzer Family is still actively involved in the business, with a significant shareholding and members still involved in the day-to-day affairs of the investment trust.
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It was utilized as the family’s diversified trading vehicle and in 1960 listed on the London Stock Exchange, changing its name to Caledonia. The company retains a diverse approach to investment – very different to many of its peers – and will take positions in private companies as well as listed entities and other investment funds.
Caledonia Investments targeting growth and income
The fund aims to generate a total return that will be ahead of inflation by at least 3% over the medium- and long term – quite handy for the current economic climate. Caledonia Investments also aims to outperform the FTSE All Share index over 10 years, which sets it apart from a lot of UK equity funds that aim to stay pace with the index, and if you fancy a bit of income the fund’s tertiary objective is to pay annual dividends increasing by inflation or more over the longer-term and on this last goal, the fund has done a reasonable job, as the dividend has been increased each year for 56-years.
On a granular level, Caledonia has grown at around 9% a year for the best part of 40-years and done this through a disciplined process, diversification and patience, as the investment team has the sort of long-term horizon that you’d expect from a young, Victorian working-class shipping clerk from the East End of London that dreamed of developing a global logistics company that would last through the generations.
Discipline with minimal gearing
The company is quite disciplined, unlike a lot of newer, funkier funds, it only permits gearing in the company that it invests in and only borrow to support its short-term liquidity requirements. The investment philosophy and process are part of its inherited culture, as it does not sub-contract the investment part of being an investment trust and is self-managed making its own investment decisions.
Given the nature of the fund, its heritage and the fact that it still has the Cayzer Family as shareholders, Caledonia Investments isn’t run to earn its fund managers fees, it’s run to manage and increase the wealth of its shareholders. With the benefit of nearly a century of hindsight, it has a long-term outlook looking past the decade-point and has prorogued itself from fund cycling, maintaining its flexibility to hold its investments for as long as it wants.
On the listed equity portfolio the company splits its investments into two categories: growth and income, targeting 10% total return from its growth strategy, with no yield and 7% total return from its income portfolio, with a minimum 3.5% yield on cost. The fund allocates between 30% and 40% to the public part of its portfolio.
Its private equity portfolio is interesting with an asset allocation of between 25% and 35% of the total fund. Caledonia Investments targets mid-market companies, investing over the long-term targeting strong capital growth of 14% total return, whilst seeking a minimum yield of 2.5%. The fund is an active investor, not an arm’s length speculator, working in partnership with its portfolio companies and able to support them financially and strategically. The private equity portfolio has been where a lot of Caledonia’s historic growth has been generated and is the kicker in the mix.
External funds for diversification
The fund focuses its own efforts primarily on the UK, and uses externally-managed funds to give it some geographical diversification, but expects at least 12.5% total return. Currently heavy in North American and Industrials, and the exposure, principally to North American and Asia, helps balance the portfolio, diversify its sources of returns and mitigate taking on too much geographic risk.
Over one-year, to end-December, Caledonia Investments returned 6.2%, beating inflation by 2.4 percentage points but behind the All-Share return of 7.92%. However, the longer-term outlook starts to come through over three-years, where then fund returned 56.5% total return and annualised against at 16.1% against inflation of 5.9 and All-Share return of 8.6% Over five-years the fund had a total return of 68.1% annualised at 11% against inflation of 4% and the All-Share return of 6.6% The fund had a Total Return of 171.9% over 10-years.
Caledonia Investments top five holdings
| Investment | Weighting | Asset Class |
| Seven Investment Management | 8.7% | Fund |
| Cobehold Investment Company | 6.2% | Fund |
| Stonehage Fleming | 5.5% | Private Equity |
| AIR-serv Europe Forecourt Vending | 5.5% | Private Equity |
| HighVista Strategies Fund-of-Funds | 4.8% | Fund |
Source: Caledonia Investments 31/12/23
With managers with skin in the game, and its focus on shareholder return opposed to fee generation, Caledonia Investment is a good diversified long-term pick. You can invest with the fund directly, or through an investment platform or financial intermediary and the fund’s shares are listed on the London Stock Exchange. The investment trust has no entry or exit costs, portfolio transaction costs of 0.02%, other ongoing costs of 1.61% and performance fees of 0.49%.
