The Caledonia Investments trust could be an attractive bet for investors who are willing to back the new boss, according to James Brown (pictured), investment trust analyst at Winterflood Securities.

The giant trust is languishing on a discount of 23.73 per cent according to data from FE Analytics, and performance in the last three years has been dire, but a new investment strategy from chief executive officer Will Wyatt is already starting to bear fruit. 

"The discount on this trust has been drifting out for the last couple of years and we think there is good value there now." said Brown. 

"Wyatt came in as CEO two years ago now. He completed a strategic review and instigated a change of strategy, concentrating the portfolio and removing some of the trust’s smaller holdings, and also trying to increase its dividend over time." 

"The trust is yielding 2.8 per cent now, which is still below the FTSE All Share, but it is starting to get into the kind of territory which has some meaning." 

Over three and five years the investment trust – which was actively marketed to retail investors over the last decade – has performed badly. 

The fund lost nearly 15 per cent over five years in terms of total returns while its IT Global Growth sector gained 6.28 per cent. Over three years, performance has been virtually flat at 0.5 per cent growth, while the sector has gained nearly 30 per cent. 

Performance of trust vs sector over 5-yrs



Source: FE Analytics

It has improved more recently. Over one year the trust still lags behind its peers in its sector, but over six months it has raced away, delivering 11.43 per cent while the peer group has returned 1.76 per cent. 

Sustaining that performance is key to the recovery of this trust’s discount, according to Brown, who thinks that it could narrow to as little as 10 per cent if the new strategy continues to work. 

"The discount has traded at asset value in the last five or 10 years. I’m not saying it will go that low but I think 10 to 15 per cent would be very achievable," he said.

"The key to this is a period of improved NAV performance that is sustainable. There is no hiding the weakness of the NAV performance in recent years, and that must improve if the discount is going to move in." 

He thinks investors would be ill-advised to buy into the trust, a large portion of which is owned by the Cayzer family who originally set it up, with a short-termist attitude.

"I like their investment strategy," Brown continued. "They’re long-term holders, they don’t look to sell assets, they look to take strategic long-term stakes in the businesses they invest in and get involved in running them, but you need to be aware that you are investing alongside the Cayzer family and they’re in it for the long-term." 

"For investors with a short-term approach it may well be the wrong place."

Caledonia Investments trust has a TER of 0.96 per cent. Its interim results will be delivered on 27 November.