In 2010 Caledonia Investments (CLDN) appointed a new chief executive, Will Wyatt, who undertook a review of the trust's strategy and made a number of changes. And the trust's results for the year ended 31 March 2014 suggest this policy is bearing fruit, with a net asset value (NAV) return of 14.9 per cent against 8.8 per cent for the FTSE All-Share. It is the second year of improved performance.
"We had a long tail of small investments which never made an overall impact and all that effort finding and managing them would have been better spent on larger businesses," explains Mr Wyatt. "We actively sold the smaller positions, and as these are less liquid it took some time. We have a few left but the process is well under way.
"We also raised the income we get, and have made it far more sustainable and robust by building up specialist pools, and adding some large high-yielding shares."
Large-cap additions over the past year include Rolls-Royce (RR.), Atlas Copco (SW: ATCOB) and Diageo (DGE), as "all pay healthy levels of dividends". The trust is now divided into five pools, one of which is income and growth and accounts for about 13 per cent of overall assets. This is a large-cap global equity portfolio and in the trust's last financial year its income increased 40 per cent. The trust overall yields 2.21 per cent.
"We have also increased our geographical reach but in a way that is easier to manage," continues Mr Wyatt. "Before we had direct investments in countries such as India, China and Vietnam, but now we do this via our funds pool which has around 10 funds which access about 300 individual underlying investments outside the UK."
They have a particular focus on Asia and the US via quality fund managers in specialist areas such as private equity, with the most notable performance in the trust's last financial year coming from Capital Today China, which posted a 53 per cent increase in value.
During the year, the trust invested in a number of new funds including the Polar Capital Global Financials Trust (PCFT) initial public offering, which aims to benefit from the rerating of financial assets.
"But we are unapologetically UK-focused in our unquoted pool of investments because in other countries you get different cultures and laws which can make it riskier," says Mr Wyatt. "And it is not our job to risk capital, but grow it sensibly."
He has also changed the management team internally: while everyone used to cover all areas, now each of the investment team specialises in a particular area.
Will Wyatt CV Will Wyatt has been chief executive of Caledonia Investments since July 2010. He joined the company in 1997 from Close Brothers Corporate Finance, working at Sterling Industries before transferring to Caledonia's head office in 1999 as an investment executive. He was appointed an associate director in 2002 and a director in 2005. He is vice chairman of the supervisory board of TGE Marine, and a non-executive director of Avanti Communications Group, Cobehold and Real Estate Investors. |
Over the trust's last financial year its allocation to unquoted investments has risen, while its quoted pool of investments has decreased. It says this reflects their view on the comparative valuation between listed and unlisted markets, and the opportunities that came up. "We are seeing better value among unquoted investments which is why the allocation is slightly higher," explains Mr Wyatt.
Recent unquoted investments include Park Holidays, the UK's fourth largest caravan park operator, which Caledonia's investment team likes because it is asset-backed, high income-generating and provides "an excellent total return opportunity over five to 10 years".
Choice Care, meanwhile, runs 49 residential care homes for adults with mental health problems. Mr Wyatt says the company is a "well invested, asset-backed investment with strong cash flows and an established platform for growth".
The investment team continued to take profits in the quoted pool over the trust's last financial year when it "top sliced" investments, including Close Brothers (CBG), Bristow Group (Nas: BRS), LondonMetric (LMP) and Quintain Estates (QED).
"We keep a close eye on size," says Mr Wyatt. "Close Brothers, for example, has been a superstar investment for years, but four years ago it had grown to around 15 per cent of assets because it had done fantastically well. Now it accounts for about 4.4 per cent of assets. It is still doing well but we took the opportunity to take profits.
"Nasdaq-listed Bristow has also done particularly well over the last three years and we wanted to take a bit off the top."
The team is taking profits on very highly priced shares because it's "minded that markets have had a very good run the last four to five years helped by accommodative central bank policies which will unwind," explains Mr Wyatt. "Markets are fully valued so we wouldn't use all our cash and gear [take on debt]. "But we are not saying the world is going to hell in a hand basket, we are just cautious value investors who won't deploy money when prices are too high.
"Our natural stomping ground is the lower end of the FTSE 100 and the FTSE 250, but in the latter, in particular, there are not many bargains. We have taken quite a lot of money off the table but not found much to redeploy into in the FTSE 250.
"Asian markets, however, seem to have come back a bit and we have allocated some money there via the funds portfolio.
"We are long-term investors of at least 10 years, whereas most investors are focused on the shorter term. That means we are not frightened to take money off the table and put it in unquoted investments or cash. Many can't afford to be out of the market, but we will happily sell out and wait for the next opportunity."
Value is also important: "If you overpay for an investment on day one you always struggle to make a profit," says Mr Wyatt. "So select good investments and buy well."
